Canaccord Bleak on Handsets, Sets Palm Target at $0

When it comes to the outlook for 2009 PC and handset sales, you won’t find many analysts with a gloomier view than Canaccord Adams analyst Peter Misek.

In a research note late Wednesday, Misek asserted that ‘09 PC sales are likely to be down 10%-15%, much worse than the consensus view of 5%-6% lower, with handset sales down as much as 20%, again a far grimmer view that the Street consensus of down 4%-6%.

“The over-levered global consumer has been decimated by rising unemployment, housing declines and a major drop in investment portfolios,” he writes. “And so begins a multi-quarter, if not multi-year, retrenchment as consumers look to salvage their balance sheets. This theme sets the stage for a very difficult 2009 for consumer electronics companies given the close ties to discretionary spending. We have observed industry analysts slash PC and handset targets recently; however, we believe even these are overly optimistic.”

Misek laid out his gloomy scenario in a report in which he picked up coverage of Palm (PALM), Nokia (NOK) and Apple (AAPL). Here are the details:

• Nokia: He start with a Sell rating and a $12 price target, well below Wednesday’s close at $16.51. Not only does he a sharp downturn in mobile handsets, but he also sees a 15%-20% drop in mobile and fixed infrastructure spending, hurting the company’s Nokia Siemens joint venture. He also expects the company to lose market share, particularly in smartphones, to Apple and Research in Motion. Misek also believes estimates are too high: He sees EPS of $1.15 this year, 89 cents next year and 97 cents in 2010. The Street sees $1.40, $1.16 and $1.05.
• Palm: He starts with a Sell rating and a target price of zero. That’s right, a zero. (The stock closed Wednesday at $2.20.)

  “Due to increased competition in the industry, Palm has lost its place as a leading smartphone manufacturer and has gradually become less relevant as more competitors have introduced more innovative smartphone devices,” he writes. “The company is financially distressed and lacks any viable future catalysts which could help restore profitability.” He sees the company losing $1.75 in its May 2009 fiscal year, with a loss of $1.58 in FY 2010. The Street sees losses of $1.08 in ‘09 and 66 cents in 2010.

  He says that due to weak fundamentals, “coupled with a lack of meaningful product launch catalysts, a debt-laden capital structure and a history of a lack of execution,” the company’s prospects will get worse in 2009. “Hence, with $725 million worth of debt and preferred shares ahead of equity holders, we are initiating coverage with a SELL recommendation and a target of nil.”

• Apple: He rates the stock a Hold, with an $80 price target, below the Wednesday close at $89.16. While he’s not quite as bearish on Apple as he is on Nokia and Palm, neither is he in any danger of being anointed an Apple fanboy.

  “We believe that a global consumer slowdown threatens to take up to $3 trillion in consumer discretionary spending off the table over the next few years,” he writes. “Apple has used a slew of impressive new products and premium branding to weather much of the storm thus far. However, we expect the economic fundamentals to erode further at a time when Apple’s products are beginning to stagnate. The combination will in our view give Apple few options with which to respond, leading to either ASP pressure or a significant unit shortfall. In our opinion, Street expectations continue to underestimate the inherent risk heading into 2009.

  Misek sees profits of $3.75 a share for the September 2009 fiscal year and $5 for FY 2010; that is way below the Street at $5.26 or this year and $6.50 for next year.

  So why not a Sell rating? “We still expect market share gains in notebooks and smartphones, which will offset some of the macro weakness,” he writes, also taking note of the company’s rock-solid balance sheet, with $27 a share in cash and no debt.

Comments

[VERONICA:]

And Peter Misek is qualified how? Is he in the 90 percentile of financial analyst / predictors that ignore the impact of the most popular communications device ever released? Has he looked at the brand of computer that graces every college campus in the developed world? Has he looked in any kid's bedroom? Windows PC's may be saturated, but Apple's potential market share remains enormous.

In these times especially, people need to be concerned and responsible about what they proclaim or predict... especially if it is without acknowledging the overwhelming popularity and growth indicators contradicting their statements.

Thanks for listening.

Veronica

2008 Dec 18 01:36 PM

[KenC:]

Gloomy scenario on Palm, Nokia and Apple. Hmmm.... don't tell me, he's Canadian? And, what is his scenario on Rimm?

2008 Dec 18 01:51 PM

[VERONICA:]

Sorry, one more thing... Which of those Apple products would it be that are starting to stagnate??

Walmart is going to be selling the iPhone and the iPod touch is selling like hotcakes... sure sounds like stagnation to me...

Sorry Eric, but imo, this Misek guy just isn't quite up to card table height, it seems.
Bad economy... sure, no more big ticket houses or cars, but do you really, truly think people are gonna stop buying iPods and iPhones and start buying Zunes and Razr's instead???

Veronica

2008 Dec 18 02:21 PM

[mollytjm:]

he does say APPL is a hold... which is what APPL should always be...it's a value company with no debt. they won't stagnate on new products just because they're not going to macworld (about time for that move!). they're just not going to put their employees in a pressure cooker over the holidays in order to release the newest in january..also angering customers who spent $ over the holidays buying what they thought ws the hottest. APPL has plenty of room to expand worldwide and remains sought after and popular. i think it's the one tech company that will come through all of this well.

2008 Dec 19 08:26 AM