In Focus: Nokia’s Stream of Bad News Just Keeps Flowing
Nokia (NOK.N) slashes the price of its brand new smartphone as its investors brace for another larger-than-expected loss for the second quarter of 2012.
Only about three months after unveiling its latest smartphone, the Lumia 900, Finnish telecommunications giant Nokia (NOK.N) has cut the product’s price in half in the AT&T (T.N) retail outlets in the United States, a move that this Reuters News article attributes to lackluster demand and the fact that Microsoft has said the smartphone won’t be able to run its next generation of software, Windows 8.
The move is the latest blow that Nokia has suffered in its ongoing battle to retain its status as one of the pre-eminent makers of mobile communications devices. Despite launching new products like the Lumia 900 with Microsoft software to compete with Apple’s (AAPL.O) iPhone and Samsung’s (SSNGY.PK) Galaxy smartphones (featuring the Android operating system), Nokia has struggled in vain to hang on to market share. That has put downward pressure on the company’s profits, as we discussed on AlphaNow last April.
At that point, Nokia had a negative Predicted Surprise of -12%, reflecting a significant gap between the StarMine SmartEstimate and the I/B/E/S consensus of analysts’ forecasts. Nokia went on to report a loss of 10 cents a share; a figure that, as we expected, was significantly worse than the consensus forecast and even lower than the SmartEstimate. Now, with Nokia poised to report its second-quarter results on Wednesday, the outlook is still gloomier. While the analyst consensus is for Nokia to report a loss of about 11 cents a share, the SmartEstimate now stands at a loss of 13 cents a share. That gives the company a negative Predicted Surprise of -21%, significantly above the first-quarter level.
The outlook for Nokia appears to be deteriorating according to several other StarMine models. The Analyst Revisions Model awards Nokia its lowest possible score of only 1, meaning that analysts covering Nokia are – likely to continue revising their estimates for the company’s financial results lower in the coming weeks and months. Nokia has attracted a tremendous number of short sellers in recent weeks; that is generally a bearish signal although the company’s score of 93 on the StarMine Short Squeeze Indicator does caution that if there is an unexpected bit of news that causes an upward price movement, the odds are very high that that price increase will be higher as shorts scramble to cover their positions.
There’s also room for some anxiety with respect to the company’s balance sheet since Nokia scores only 3 on the StarMine Structural Credit Risk Model. The lower a company’s score on this metric, the higher the probability is that it will default on its debt or file for bankruptcy within the next 12 months.
Nokia’s stock price may well already incorporate many of these negative fundamentals. It has declined steadily since November 2007, and last week hit the lowest levels seen since the mid-1990s. Still, investors may want to keep an eye open for any further turbulence, especially given its sizeable negative Predicted Surprise and this most recent bearish piece of news with respect to its ability to continue to compete against Apple and the increasingly ubiquitous iPhone.
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