IV: The fundamentals
Recently there have been some good articles about Nokia's fundamentals in Seeking Alpha that tell us that,although it is not obvious, that a turnaround is on its way. Some of the following points are taken from a comment of a Seeking Alpha reader. They show that Nokia has done it's homework:
1) "Nokia´s stock price is still heavily undervalued.
NYSE tech stocks are usually 2x book value, Nokia is still way much below that (1x). According to Morningstar´s valuation, the sum of parts of Nokia (NSN, Navteq, feature phones, smartphones, patent portfolio and cash) is worth much more than Nokia´s stock price right now. Note that Nokia is currently selling at 0.3 price/sales ratio. This means that if the company manages to restructure and return to normal profitability, the stock has big upside potential - assuming the market will value Nokia 3.0x sales like Apple or Microsoft (MSFT) it is a 10-time bagger. But even a price/sales ratio of 2, like Intel has, means a 6-time bagger from these levels.
Nokia: 0.3 Apple: 3.0 Intel: 2.0 Microsoft: 3.0
2) Nokia has increased net cash to about $5.7 billion. Nokia´s worst loss has been $290 million in a quarter in 2012. Even with this kind of loss, Nokia could still deal by its own net cash for at least 4 years!
3) Nokia has cut cost expenses. The layoff in 2012 starts to be fully effective in 2013. In the telephone conference of last week Nokia confirmed that the worst is done.
4) Although it might be a payer to Microsoft soon, Nokia has patent incomes from APPLE and RIM.
5) Nokia has managed to make the important tough work for the basis of its new platform WP. Nokia has already sold over 15 million Lumia phones up to date (9.9 million units from Lumia debut till the end of September 2012 + 4.4 million units in the last quarter of 2012).
6) Nokia has now a high end phone that can make "halo effects" and be compared to Apple´s and Samsung´s most high-end phone, the Lumia 920. The demand of this phone is still high in many countries around the world. The 4Q12´s Lumia sales did not include the sales of Lumia 920 in many countries, such as India, Asia-Pacific, UAE, Latin America, and many other countries around the world yet, because the phone is arriving these countries only starting from January 2013.
Even in Europe, many countries start to get this phone starting 1Q13, for example the Netherlands announced the phone arriving in January. And China Mobile received only first lot of Lumias 920T around Christmas, the second and third lot and further have arrived China, and the phone is still selling out.
7) China Mobile deal. When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from 0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones, this will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there. Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!"
8) Although Nokia is far behind in the US, it is very popular in some big emerging markets. For example Nokia is most trusted brand in India and has a good ranking in China!
9) NSN: Nokia Siemens Networks. During the last months NSN has won many 3G and 4G contracts in different countries. According to NSN, they have network equipment that can boost the speed of 4G many times faster. This shows that, besides PureView camera technology, HD+ sensitive screen technology, advanced mapping platform HERE and City Lens, that Nokia has also top innovations in building 4G LTE networks.
10) The big player Microsoft is pushing Windows 8. Nokia became within 2012 the far most important Windows 8 player with a Win8 market share of 70%.
11) Nokia remains a takeover target! With a total market value of about $15 billion Nokia is worth less than a quarter of Microsoft's net cash.
12) Nokia's production will ramp up and will become cheaper soon. With the new factory in Vietnam which is planned to start production in "not too distant future", Nokia will remain competitive towards Asian companies which attack Nokia's cheap and popular Asha phones.
13) No more dividend! All the years when Apple paid no dividend, the stock went up. Announcing a dividend seemed like a last sugar for small investors to stay in the market while the big players were already selling the stock. With Nokia it might just be the other way round.
14) Capital increase? Everybody became afraid last Thursday since Nokia wants to keep the possibility of a capital increase. Please note that this is nothing new! Every company wants this possibility. Nokia just renews an existing possibility of capital which would have ended in May this year. Nobody said that a capital increase will really take place.
If people talk about a default of Nokia they should keep in mind that this company was founded in the year 1865! Within the last century Nokia proofed more than one time that it could do a transition in its business: From paper to car wheels, then TVs, afterwards mobile phones. Why this story should not continue? While the company missed the smartphone trend 5 years ago and was overtaken not only by Apple and Samsung, one should not underestimate its ability to adapt themselves to changing market conditions.