What's Really Going On With Nokia Shares

Investors should sell Nokia shares - the world抯 biggest maker of mobile phones, Royal Bank of Scotland said as Nokia's telecom gear venture Nokia Siemens Networks posted profit above average forecasts on Thursday and said it could report a first-quarter loss.

The phone market has recovered from a slump in 2009 when the global economic slowdown dampened demand for the latest gadgets, with demand for new smart phones like Apple iPhone and Samsung's Galaxy S surging. However, Nokia, the world's top handset maker by volume and sales, has lacked a hit smart phone since the N95, which it launched in 2006 before Apple stormed onto the market. Nokia's share of the smart phone market fell to 31% in the fourth quarter from 38% in the previous quarter.



What scares the market is the rapid share loss that Nokia seems to have experienced in the fourth quarter.

Net income in the three months to December 31 fell to €742 mil. ($1.02 billion), or 20c. per share, from €882 million, or 26c. per share, earned in the year earlier quarter. On an adjusted basis, earnings came in at 22c. per share. The consensus forecast was for profit of 18c. per share. Sales climbed 6% to €12.6 billion, topping consensus of €12.4 billion. But the number of units shipped fell 3% year-on-year to 123.7 million. At the main devices and services division the adjusted operating margin fell to 11.3% from 15.4% a year earlier. Although the fourth-quarter results topped expectations on some measurements, Nokia抯 outlook for the first quarter disappointed.

The Finnish handset maker predicted the adjusted operating margin at the devices and services division would be between 7% and 10% while sales would come in between €6.8 billion and €7.3 billion. Ahead of the results several analysts expressed concern that the outlook for the first quarter would be soft, given uncertain continued demand for the N8, the delayed start to the E7 and the likely postponement of new high end Meego products to the end of the second quarter.

Nokia shares were last down 10% in Helsinki midday trading. Chief Executive Stephen Elop will unveil a comeback strategy on February 11th for Nokia at the company抯 long-awaited capital markets day.

The company has lost market share at the high end to the likes of Apple Inc and HTC over the past two years. Increasingly, analysts worry that it could start losing ground in emerging markets, its bread and butter for years, in 2011. Nokia replaced its CEO a few months ago but Elop has yet to unveil turnaround plans. The company抯 software strategy is of particular interest as its determination to stick with Symbian as its smart phone operating system of choice is believed by many to be at the root of its inability to come up with convincing high end handsets.

Over the last 52 weeks the stock has ranged from a low of $8.00 to a high of $15.88. Nokia shares are falling today and analysts predicting that the company抯 market share in global handset sales will fall in 2011.

If you are looking for a hedged play on Nokia. The stock seems like could be a candidate for a July out of the money bear call credit spread above the 12 range.

For more information please go to: http://companyeye.co.uk/subscribe.html
Company Research Notes can be found at: https://sites.google.com/site/companyeye/research-reports