Nokia presentation aug26
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Transcript of Nokia presentation aug26
Nokia- a significantly under-valued turnaround
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Private & Confidential
A"er twelve years in European Equi4es in London & NYC, realizing the trough of the US housing market had been reached, I le" finance in Q2 2012 to create and deploy a Limited Partnership purchasing, renova4ng & leasing out distressed houses in the South East US. During this 4me outside the mainstream world of finance, I have developed a strong framework to extract value added insight and ideas from non-‐mainstream resources. The growth of big data & social media has led to the con4nuous flow of remarkable insight & informa4on flow as pertains to all industries & businesses. The scope to leverage these non-‐mainstream resources to add value to stock market investors is fascina4ng in its’ poten4al. It was through looking at certain social media metrics, I no4ced a strong up4ck in indicators of consumer trac4on of the Nokia Lumia range. Combining my background in equi4es with non-‐mainstream resources , I did a deep dive into the investment case which is presented here. Nokia is significantly undervalued & mis-‐understood as evidence of the turnaround in smart phones is growing. The August 22nd, 2013 announcement that Delta is conver4ng its’ en4re fleet’s air aUendants to use Lumia 820 in-‐flight is the 4p of the iceberg for the enterprise segment. I am invested in Nokia. Please feel free to contact me directly at [email protected] or on +1 646 509 6316 to discuss this or other ideas have developed.
Shyam Kumar, August 22nd, 2013 2
LEGAL DISCLAIMER • THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN
INTEREST IN GENESIS HOUSING FUND, L.P. (THE “FUND”). ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE “MEMORANDUM”) AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW. AN INVESTMENT SHOULD ONLY BE MADE AFTER CAREFUL REVIEW OF THE FUND’S MEMORANDUM. THE INFORMATION HEREIN IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION IN THE MEMORANDUM.
• AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE IS EXPECTED TO DEVELOP. NO ASSURANCE CAN BE GIVEN THAT THE INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR ANY PORTION OF HIS OR HER INVESTMENT IN THE FUND. INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.
• CERTAIN DATA CONTAINED HEREIN IS BASED ON INFORMATION OBTAINED FROM SOURCES BELIEVED TO BE ACCURATE, BUT WE CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION.
• REFERENCES TO SPECIFIC GEOGRAPHIC LOCATIONS AND PROPERTIES LOCATED THEREIN ARE PRESENTED TO ILLUSTRATE THE APPLICATION OF OUR INVESTMENT PHILOSOPHY ONLY AND ARE NOT INTENDED TO BE CONSIDERED RECOMMENDATIONS BY SHYAM REAL ESTATE, LLC. THE SPECIFIC LOCATIONS AND PROPERTIES IDENTIFIED AND DESCRIBED IN THIS PRESENTATION DO NOT REPRESENT PROPERTIES ACTUALLY PURCHASED, SOLD OR RECOMMENDED FOR THE FUND, AND IT SHOULD NOT BE ASSUMED THAT INVESTMENTS IN THE PROPERTIES IDENTIFIED WILL BE PROFITABLE.
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Nokia: Severely Undervalued Turnaround
• Nokia Devices & Services & Patent Por5olio trades for ZERO VALUE in current Nokia market cap of E11bn
• Excessively bearish senAment towards company due to significant historic under-‐performance
• Market not recognizing huge opAonality embedded in Nokia’s Device business becoming a credible player in Smart Phones from current low 3.3% global m/s
• It is already happening: Lumia 520 is tracking as a blockbuster product. Lumia 1020 has the best smartphone camera technology & augmented reality mapping on the market.
• Windows Phone eco-‐system had only 3.9% of Global Smart Phone Market Share in Q2 according to IDC. Huge opportunity to gain market share as Windows Phone OS catches up & Nokia drives hardware performance
• Global Smart Phones Volumes in Q2 +50%, growth is in low to mid end and emerging markets, Nokia’s key foot print.
• Microso[ has installed base of 1.5bn customers, Nokia 1.3bn; Required conversion rates of exisAng installed base to Windows Phone OS to gain meaningful market share is very low
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Nokia: Severely Undervalued Turnaround
• Nokia’s Main Businesses Under-‐Appreciated & Undervalued • NSN: Siemens 50% stake bought at E1.7bn a steal. Valuing NSN at 0.7x EV/ Sales
E8.5bn. • Ericsson has E30bn mkt cap & only twice sales base as NSN, similar Q2 margin • HERE: Mapping is new growth area & is increasingly embedded into search. It is
point of differenAaAon between operaAng systems. • HERE business created by $8.1bn Navteq Deal in 2007. Very low profit margins as
spending 90% of Sales on R&D. • R&D spend is a GOOD thing given scope for HERE to forge ahead in mapping
segment. Nokia HERE augmented reality mapping available through its City Lens app is amazing & an under-‐appreciated technological breakthrough. At Lumia 1020 presentaAon, a[er camera its mapping was next most focused on differenAator by CEO Elop.
• HERE is one of 3 global mapping libraries at a Ame when mapping is growing as point of differenAaAon. Waze a start up just purchased for $1bn by Google. Yet sell side SOTP only values HERE at a paltry E0.5bn.
• Patents: Nokia spent E4bn on R&D last year, 15% of sales. One of Largest Global R&D spenders in any industry
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Nokia: Severely Undervalued Turnaround
• Patent porMolio, under appreciated. Nokia has significant patent por5olio with average life of 13.8 years earning at present E500m+ per annum.
• Envision IP esAmates 20,000 internaAonal patents, 16,000 US Patents • ConservaAve EsAmated value E4bn +. Nortel Networks Patents sold for $4.5bn,
Motorola Mobility arguably patent driven deal at $12bn • Cash: Q2 13 E4.1bn net cash, post NSN compleAon & extra cash burn esAmate
E2bn at Q3 13 • Devices & Services: E11bn sales, at 0.3x Sales = E3.3bn. ValuaAon for Devices set
to EXPLODE as Nokia gains share in Smart phone in next 12 – 18 months. • Xiaomi, Chinese android smart phone maker valued $10bn yet forecast sell 20m
units in 2013 only, 3 years old & China centric.
• NSN + HERE + Net Cash= E11.5bn or current NOKIA market cap
Patent PorMolio & Devices business in there for ZERO Market is pricing Nokia & Windows Phones as all out failure, when in fact it will be posAng 100%+ YoY volume growth in Lumia smart phones in H2 6
Device & Services: The Big Delta
• The mulA-‐billion dollar quesAon is whether the Nokia -‐ Microso[ Partnership can establish themselves as scalable third alternaAve eco-‐system in the mobility space.
• At Q2 2013, 79% of all Smartphones shipped were Google’s Android, 13% Apple’s IOS and 3.9% Windows Phone
• Nokia is commined to Windows Phone OS All 2016, 85% of Windows Phones sold are Nokia.
• Nokia is criUcal to MicrosoW’s plans to build out its’ Eco-‐System between PCs, Tablets, Xbox & Smartphones. MicrosoW has to gain a foothold in Mobility.
• Nokia has a $300bn market cap company in Microso[ totally behind them & needing Windows Phone Eco-‐system to succeed
• SymbioAc relaAonship between Microso[ and Nokia given co-‐dependence. • To understand Nokia’s prospects of resurgence in Smartphones need to
understand the prospects for Windows Phone OS as a credible & growing third alternaAve OperaAng System for consumers & business
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Windows Phone OS: Network Economics
• Network economics very much at work as explained by the recent paper
‘Developer Economics Q3: State of the Developer NaAon’ ‘Android and iOS have grown on the back of strong network effects, whereby they grow stronger with each user and developer added to the ecosystem. Users drive demand for apps and hence developers. Developers and apps drive user adop4on’. • Nokia & Windows Phone are seeking to catalyze the posiAve dynamic of the ‘
network effect.’ • Volume growth is key to reach ‘Apping point’ for the eco-‐system whereby user
growth drives app development drives consumer appeal drives user growth… • Focus should be on market share & not ST profits as seeking to reach ‘Apping
point’ for eco-‐system & propel network effects.
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Windows Phone OS
• April 2011: Nokia under Elop abandoned Nokia’s own Symbian proprietary system Symbian sales purposefully collapsed from 7m in Q2 12 to Zero in Q2 13. • Windows Phone 7 OS launched & ramped to sell 4m Nokia Smartphones in Q2 12 • June 2012: Windows Phone 8 OS announced, however not backward compaAble
to WP7 devices. • Lack of compaAbility stalted growth of Nokia Lumia Devices to 2.9m in Q312
before WP8 OS launched Q4 2012 • Nokia sold 4.4m Lumia in Q412, 5.6m Q1 13, 7.4m Q2 13: AcceleraAng volume
growth
In last 2 years, Nokia has transiAoned through 2 problemaAc OS, has it finally turned the corner with WP8….
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Windows Phone OS
• Huge symbiosis between Hardware & So[ware: Nokia Lumia hardware needs to have an OperaAng System that not obviously lacking vs.. compeAtors
• Windows Phone 8 OS seen as ‘mixed’ by customers & industry analysts. • PercepAon is that Microso[ as a so[ware partner is lagging Nokia as hardware
partner • Main Issue quoted by customers and carrier sales reps is lack of Apps vs.. Android
& IOS; WP8 has 170,000 Apps vs. near 1m on rivals OS • WP8 not support quad-‐core processors, 1080p hardware (high resoluAon screens)
or VPNs (Virtual Private Networks). • CompeAng with more developed eco-‐systems, with already large installed base of
customers, some degree of ‘lock-‐in.’ • Other ecosystems have developer ‘mind share’
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Windows Phone OS However Windows Phone operaAng system is maturing rapidly to catch up with Android & IOS which moved several years ahead of Microso[ • Windows Phone only 2 cycles so far WP7 & WP8 • Shi[ from WP7 to WP8 saw much bener consumer tracAon • GDR2 being rolled out currently & GDR3 expected Q4 13 will enable Windows
Phones to support quad-‐core & 1080p. • WP 8.1/ Blue: Much anAcipated third version of the WP OS expected start 2014 • WP8.1 will further strengthen enterprise funcAonality & likely spur rapid adopAon
of WP8.1 based Smart phones & tablets by business • Desktop / Laptop funcAonality on tablets & smart phones powerful for enterprise
segment as users can do ‘real work’ on them. Help grow the Microso[ eco-‐system
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Windows Phone OS: Apps
• Apps are area of shor5all given gap between WP & Android & IOS. • WP 170,000 apps vs. iOS 800,000, Android 1m. Largest barrier to adopAon for WP • Most concern is centered around missing a few of the most popular ones, such as
Instagram & lite versions of other apps. • Issue is one of maturity & scale; once enough Windows Phone users incenAve for
developers to develop Apps for WP. At present incenAves lead to lags of popular apps to WP
• Chicken and egg: Larger Windows Phone installed base = greater app developer interest = greater customer appeal = larger installed base…
• PercepAon in Microso[ needs to ‘step it up’ in geung developers onto the WP pla5orm. Even Nokia head of sales quoted this as major issue
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Smart Phone OS Installed Base – WP low, needs to grow to anract apps
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Windows Phone OS: Apps
• Contrary to popular percepAon Microso[ is not siung on its’ hands • Rate of App development for WP increased from 100 per day start 2013 to
currently 320 per day • Microso[ providing financial incenAves for developers to create Apps for WP
pla5orm • Microso[ making programming easier for developers to create apps for WP • Easing barriers for customers to purchase apps: 30 carriers across 20 markets so
far will bill app purchases direct to carrier bill. In China customers can pay with Aliplay (similar to paypal)
• There are sAll 170,000 Apps for WP customers, however key is to get major apps across to WP pla5orm.
• UlAmately developers will be incenAvized when see a large & growing pool of WP smartphones and customers. Reaching that ‘criUcal mass’ or ‘Upping point’ is crucial for virtuous cycle to kick in.
• Market share growth is crucial to get app developers on board.
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Developers Intent Share bodes well for Windows Phone OS
Developer Revenue per OS: WP in the ball park of iOS, Android
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Windows Phone OS: Huge Potential • Considerable potenAal in the WP pla5orm which Nokia has aligned itself • Microso[ HAS to make it in mobility: Microso[ reorg July 2013 reshaped
organizaAon to have 4 divisions to help capture mobility opportunity • Microso[ a gorilla in the tech space with $70bn cash pile will make mobility
success happen as crucial to own survival • Windows Eco-‐system is very powerful one for Nokia to be aligned on as principal
smart phone partner • Windows comprises of 1.5bn Windows users globally, embedded in 97% of
business organizaAons, with X-‐box One the eco-‐system will stretch deeper into consumer’s living rooms.
• Mobility namely Tablets & smartphones weak spot for Windows OS & hence major focus for Microso[.
• BestBuy partnership whereby Microso[ products will be showcased in store within store in 600 BestBuy shops evidence of Microso[ ‘stepping’ up
• Carriers want a credible third alternaAve ecosystem to regain bargaining power: All 3 Russian Operators have stopped selling Apple, Telefonica geung behind WP
• IDC reported in August 2013 that WP, 2nd most popular eco-‐system in Latam 17
Windows Phone OS • Enterprise (Corporate) Segment is major potenAal opportunity for Windows Phone
OS • MS office and exchange mail built in. • IT departments can integrate Windows Phones into Microso[ products that power
their business computers seamlessly. • Windows 8.1/ Blue update will deepen features suitable for enterprise such as
VPN • Examples of recent enterprise switches to Lumia include Britvic, Tef Germany,
Miele, Mall of Americas. • Delta Airline Deal announced August 2013: every one of 19,000 Flight Anendants
will use a WP Nokia Lumia 820 in-‐flight to enhance producAvity & customer service.
• Delta Deal is a huge Ack in the box & highlights potenAal of WP OS to penetrate enterprise segment given Microso[ is part of DNA of virtually all businesses.
• Use of smart phones by business to enhance producAvity is early in its’ adopAon. Windows Phone & Nokia set to benefit from this boon in adopAon by enterprise
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Nokia Lumia- Key to recovery • Nokia Lumia range encompasses every price point from low to high end • InnovaUon within Lumia range has been exemplary and Ame to bring to market
products from concepAon is 6 months • MulAple Lumia products launches in 2013 • Lumia 520 range: Q2 13 launched Retails $100 -‐ $150, entry level smartphone with
high end features. Blockbuster product • Lumia 620: Mid-‐Range, $249 at launch Q1. Asia, Europe, Middle East • Lumia 720: Mid Range, $329, Asia launch at first Q1 • Lumia 925: High End Smartphone. Launched June 2013, 925 retails T-‐Mobile US,
Aug 13 came to India at price of $560. • Lumia 928: High end solely Verizon in US: Similar to 925 as part of 92x pla5orm • Lumia 1020: Flagship just launched July 16th, only in US on AT&T, $650 retail. Best
camera on smartphone by far. • Lumia 625: Announced July 2013, 4.7 inch screen big screen, 4G, successor to
Lumia 620
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Nokia Lumia – Key to Recovery • Smartphone market saw volume growth of 50% Q2 2013, forecast to near 1bn
volumes in 2013. • 1.2bn installed base of smart phones 2012, Ericsson forecast to grow to 4.5bn in
2018, CAGR 20%+
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Mobile Subs Growth focused in Emerging Markets where Nokia’s footprint strong
Nokia Lumia-‐ Key to Recovery
• Globally +130m net mobile subscripAons growth in Q1, mostly outside US, Europe. China accounted for 25% of net addiAons.
• 50% of mobile phones sold in Q1 13 were smart phones vs. 40% in 2012. • Smart phones account for 20 – 25% of all subscripAons (Ericsson June Mobility
report), scope for penetraAon to increase significantly • Nokia large emerging markets footprint (65% of sales), where smartphone
penetraAon low but growing rapidly • Nokia has an installed base of 1.3bn customers, significant number in emerging
markets where scope to upgrade them to smart phone is significant • Nokia has a strong product offering in the low to mid range, segment expect
highest growth rates going forward. • $100 -‐ $200 range smartphone market volumes to double in 2013. Lumia 52x
range is in the sweet spot of the smartphone market & is tracking like a blockbuster product
• Nokia focused on connecAng the ‘ Next Billion’ Smart phone users, which plays into emerging market footprint & asp range
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Nokia Lumia – Key to Recovery • Nokia Lumia range is 85% of Windows Phones Sales, the main driver of growth of
WP OS
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Nokia Lumia-‐Key to Recovery
• Q2 2013 Lumia, saw 32% volume grow QoQ to 7.4m units with fall in ASPs to E157 from E191 given low to mid range growth and price aggressiveness
• Nokia focused on building market share with Lumia range, rather than short term profit maximizing. Network economics at play
• Growth in the Windows Phone eco-‐system likely to be linear unAl a ‘criAcal mass’ or ‘Upping point’ is reached whereby growth can go parabolic.
• Virtuous cycle: WP Eco-‐system needs to grow its’ installed base to trigger virtuous cycle. Greater installed base leads to greater developer interest, more apps, anract more consumers, anracts more apps and so on.
• Market share Upping point whereby Windows WP comes a very credible third OS, and that is the ‘Apping point’ for sales. At present WP OS has 3.9% m/s Q2 13 of Smart Phone, Nokia 3.3% of hardware volumes.
• Tipping point likely at 8 – 10% m/s, likely in 2014: • As investor support Nokia focusing on market share growth to reach Apping point
& grow LT value rather than short term profits
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Smart phone market shares volaAle: Scope to swing back
Microso[ WP m/s is low but scope to catch up significant
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Nokia Lumia- Key to recovery
• Lumia 1020: July 16th, 2013 Launch • Showcase of technological ability of Nokia; arguably just made the most advanced
smartphone in the space with 41 Megapixel camera on the phone. Very good reviews from tech community
• Bodes very well for future Lumia releases as camera technology will cascade down into low & mid range launches
• Augmented Reality mapping is very innovaAve feature • September 2013: Nokia analyst days in NYC to launch further products: Phablet
Tablet? • Pace of innovaAon and product launches been quite remarkable at Nokia &
momentum to conAnue into H2. • Nokia moved from product laggard to product leader
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Lumia 1020 Example Shot
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Nokia Lumia- Key to recovery • Constraints to Lumia AdopAon need to be tackled • Brand recogniUon with consumer • Carrier sales forces are accustomed to selling Android and I-‐Phone by the millions
inclined to ‘sell’ potenAal customers on those OS • Need to raise knowledge about hardware and so[ware capabiliAes with sales
forces & consumers • FuncAon of adverAsing, brand support, educaAon and incenAvizaAon of carrier
sales forces. Product is great, consumers need to hear about it. • Get over the ‘App’ hump, most common push back for switching to WP BUT • Encouragingly seeing ad support for Lumia 1020 from Microso[, Nokia & AT&T • Anecdotal evidence of tracAon of Lumia range is wide & encouraging • Nokia is focused & execuAng and innovaAng well
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Lumia 520 Blockbuster • Amazon.com: Lumia 520 & 521 best sellers at August 9, 2013 for no-‐contract
phones
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Amazon China: Lumia 520 top smart phone
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Lumia 521: T-‐Mobile Best Seller: Aug 9th, 2013
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Lumia 1020: AT&T best sellers on Amazon
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NSN-‐ Key Value Driver • Nokia SoluAons Network: Mobile communicaAon infrastructure & enabler of
mobile broadband • 18% of global telco infrastructure market • Key player in LTE technology, iniAally being rolled out. Q1 13 LTE market $2.7bn,
+108% YoY. NSN doing well in Japan, Korea& Australia • Recent 4G contract wins T-‐Mobile US, Megafon & MTS in Russia • Japan & NA 30% of NSN group sales • Mobile Infra Market Globally $9.8bn Q1 13 • Successful restructuring: OperaAng Margin moved from 1% in 2010 to 11.8% non-‐
IFRS EBIT margin Q2 13. Generated E1.4bn FCF 2012 from slight negaAve in 2011 • Shedding contracts, & exiAng unprofitable regions. Sales declined 18% YoY in Q2,
however underlying growth. • NSN guides to 7% EBIT margins, scope to outperform • Sustainable high FCF generator • Nokia bought Siemens 50% stake for E1.7bn. A steal, puung on 0.7x Sales, NSN
worth E8.5bn 34
NSN-‐ Key Value Driver
• Mobile Broadband 45% group sales, Global Services over 50% • NSN 30% of Services market amongst top 4 vendors • Forecast NSN to generate cumulaAve E2bn + of FCF 13/14/15 • Seen even bear of Nok forecast NSN to have E3.5bn net cash by 2015 • Ericsson June 2013 Mobility Report points to very strong drivers of mobile
broadband – Mobile broadband subscripAons grew 45% YoY in Q1 to 1.7bn – Mobile Data traffic doubled YoY – Mobile Data expected to grow at 50% CAGR 2012 – 2018, Twelve fold increase – LTE roll out to take global populaAon coverage from 10% to 60% by 2018 NSN delivers the Telco infrastructure needed to deliver this data growth
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Mobile Data Growth ExponenAal
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Feature Phones
• Feature Phones: Source of risk • Q4 12 vols: 80m phones, Q1 13 55m, Q2 13 53.7m. • ASP from E31 (Q412) to E28.5 (Q113) to E26.2 (Q213) • Hard to compete with Asian manufacturers in volume sector but Nokia is trying to
move up value chain as well as producing cheap feature phones e.g. 105 costs $20, • Asha 501 launched end Q2 2013. PotenAal winner as sits at smart phone/ feature
phone divide • Risk is if need further downsizing & further restructuring charges • Feature Phones EBIT E205m in H1 12 fell to E91m in H1 13 • Key is to manage decline in feature phones as smart phones division ramps up
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Nokia Feature Phones & Smart Phones ASP
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HERE: Mapping Business
Mapping business: Overpaid for Navteq $8.1bn 2007 however • Mapping is growth area: HERE saw 19% YoY sales in external mapping in Q2 13 • Mapping is growing source of differenUaUon between smart phone eco-‐systems
& is integrated increasingly into search • Technology driving increased uses for mapping such as monitoring traffic flows • Google’s $1bn acquisiAon of Waze highlights growing value of mapping assets • HERE is one of three global map libraries; Google Maps & TomTom others • Barriers to entry for building global map database is very high • Sell side value HERE at E0.5bn as very low profits. 3.4% margin Q2 13, however
R&D/ Sales raUo is 90%! InvesAng significantly in mapping technology as recognizes future value of segment
• HERE Augmented Reality maps are awesome!
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HERE: Augmented Reality Map
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Nokia Devices & Services: Key figures • Devices & Services: Q2 saw 6% QoQ decline in revs to E2.7bn. • D&S Q2 13: -‐E33m loss, -‐1.2% margin. Smart phones –E164m EBIT, -‐ 14% margin. • Q3 D&S guidance is for -‐2% margin, +/-‐ 400 basis points. Expect lower end of
guidance with losses of -‐100m – 150m – 1) Support for Lumia roll outs – 2) Price aggressive to drive market share. Will sacrifice GM for market share – 3) Feature Phones ‘managed decline’
• Group margin forecast 3-‐3.5% Q3 from 5.3% as NSN normalizes, D&S m/s focus • Q3: Key is market share and Lumia volumes: I expect 10m+ from 7.4m in Q2 13,
2.9m Q3 12. • Sell side forecast 6.5m -‐8m Lumia sold in Q3, scope to beat by wide margin • Short term focus on profit metrics WRONG criteria by which to judge Nokia at this
stage of transformaAon; volume growth of Lumia & WP installed base • Q3: Short termist bears will focus on quarterly losses, lower GM Vs. Long run
investors recognize growth of market share as the KEY as embeds eco-‐system with consumers. Network economics at play, larger installed base, stronger it grows
• Q4 13 – Q1 13: When expect operaAonal metrics to inflect 41
Nokia Devices & Services: Key figures
• Market share in smart phones is key in order to reach ‘the Upping point whereby growth goes from linear to parabolic
• Apple was posAng losses end 2002/ early 2003 before turnaround
• Balance Sheet – Q2 net cash E4.1bn, post E1.7bn for NSN and assuming similar cash burn run
rate in Q3 as Q2, net cash approximately E2bn Q3 – Expect Q3 13 net cash posiAon as trough given strong Q4 & conAnued
recovery in 2014 – Sell side forecasts seen for cash flow range from E1bn + ve FCF in 2014 to
significant cash burn in 2014 depending on if assume further restructuring charges in D&S.
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Nokia: Cash Flow Considerations
• Cash flow: NSN acquisiAon supports cash generaAon • Q213 operaAng cash flow –E196m including E230m of restructuring cash ou5lows. • Q213 net cash posiAon reduced E417m • Q113 net cash increased E120m • Bears forecast E600m+ cash burn in 2013, assumes approximately E300m in H2. • Given Q3 seeing many launches likely inventory build, market share focus, expect
similar as Q2 reducAon in net cash..E400 – E500m. • Q4 expect swing back in cash generaAon as seasonal effects • 2014: Restructuring charges for NSN declines to E200m, D&S declines to E50m in
2014 • Risk on cash flows is decline in Feature phones results in further restructuring • 2014 Forecasts vary widely depending on view of WP tracAon & need for
restructuring charges in feature phones • Assume 2014 D&S turns cash flow +ve as m/s growth hits ‘Apping point.’
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Restructuring Charges to drop off in 2014
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Restructuring Charges to drop off in 2014
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Positioning & Catalysts • Short Base: 14% of market cap • Sell Side bearish: NSN put at 0.4x Sales, ZERO value anributed to D&S including
patents, assume cash burn into 2014, further restructuring costs, negaAve bias • Sell side bears will focus on near term negaAve operaAonal metrics rather than
under valuaAon & growing eco-‐system. Even Apple was loss making Q4 2002/ Q1 2003 as transformed business
• Catalysts Q3 volumes in Lumia will be strong. Likely hear bear chorus on fact sacrificing GM to drive volumes & market share, strategy as an investor am pleased with as ‘network economics’ crucial
• Q4 13 -‐ H1 14: ConAnued progression of market share growth, product launches, WP updates, growth of app eco-‐system, enterprise wins, NSN delivery will support stock price
• PotenAal value realizing catalysts include lisAng of part of NSN, acquisiAon of D&S business as Microso[ & Huawei been rumored, profit generaAon from D&S
• This is a 12 – 24 month investment case not a trade into quarter numbers 46