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Analysts discouraged by Nokia results


Analysts were unimpressed with Nokia's (NYSE:NOK) mixed second quarter results announced Thursday, which missed the top line in all divisions and showed weak margins as expected in devices, according to an analyst note from Barclays

Barclays analysts Andrew M. Gardiner and Youssef Essaegh retained their underweight rating on the company, saying they do not anticipate such improvement in the near- to medium-term, based on second quarter results, third quarter guidance and the bank's more cautious view of the competitive environment. 

Earlier this morning, the Finnish handset maker reported a net loss of 227 million euro ($298 million), better than the EUR1.41 billion net loss it posted a year ago and better than analysts' forecasts. Analysts had expected a net loss of EUR276 million.

Sales fell 24 per cent, however, to EUR5.7 billion in the April through June period, well short of the EUR7.54 billion in the year earlier period and below analysts' forecasts of EUR6.27 billion. Nokia Siemens Networks revenues were EUR2.8 billion, compared to consensus estimates of EUR3.2 billion. 

"Nokia Siemens Networks margins of 12% are the standout, but the company has indicated much of this is one-time in nature and not to be repeated in 3Q, with margins dropping back to 7% in 3Q13 in line with consensus," noted the Barclays analysts. 

Nokia also announced that it is increasing the scope of its cost cutting program in the unit, now targeting EUR1.5 billion by the end of 2013 compared to over EUR 1 billion previously.

In smartphones, the company shipped 7.4 million units, lower than consensus estimates of  7.7 million, but the bigger concern, says Barclays, is that the converged mobile device average sales price dropped to EUR157 from EUR191 in the first quarter. 

Analyst Charlie Wolf at Needham & Co. concurs, downgrading Nokia to a hold rating on the basis of the declining average sales price, suggesting that it is the lower priced phones that are finding traction with customers, rather than the Lumia Windows-based smartphones, which actually recorded higher sales. 

"The argument has been made ad nauseam that carriers would like to see a third major smartphone platform emerge to compete with the iPhone and Android," Wolf wrote. "However, Nokia's second quarter results raise the possibility that consumers are content with just two platforms. If so, this does not speak well for the Microsoft/Nokia duo going forward."

In low end mobile phones, the company's shipment of 53.7 million units missed as well, lower by 6 per cent from Barclays' estimates of 57 million, and down 4 per cent quarter-on-quarter. Average selling prices in mobile phones also dropped, down to EUR26 from EUR28 in the first quarter, and EUR31 in the fourth quarter. 

Nokia is guiding third quarter device margins in the range of negative 2 per cent, plus or minus 400 basis points, versus consensus for positive 1 per cent, brought on by the competitive environment. Margins in devices and services in the second quarter were 1.2 per cent, in line with expectations. 

Shares of Nokia were down by one penny in New York late afternoon, at $4.03. 

Quick facts: Nokia Corporation (ADR)

Price: 3.78 USD

Market: NYSE
Market Cap: $21.24 billion

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