Handling Nokia Through Earnings

| About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) shareholders, hold on to your hats and keep your antacids nearby, for earnings season is upon us and that means there are rough seas ahead.

Those that have listened to Nokia's quarterly teleconferences know CEO Stephen Elop's voice well. During the Q1 call, he said:

With the broad portfolio of Lumia devices covering a wide range of price points, we are seeing our Lumia momentum accelerate as we exit Q1. Thus supported by the wider availability of recently announced Lumia products and the easing of supply constraints, we expect sequential volume growth in Q2 to be even higher than the 27% sequential growth we saw in Q1.

Regarding mobile phones, Elop said:

Thus, with the benefit of hindsight we started Q1 with higher channel inventory in mobile phones than would have been optimal. And, we reduced the absolute level of mobile phone channel inventory during the quarter, which significantly impacted our sales volumes. In response, we have taken actions to address the situation.
Specifically, we are focused on ensuring price competitiveness of our key mobile phones products. We are increasing our marketing efforts for certain mobile phones products in Q2.

In the question and answer part of the call, Chief Financial Officer Timo Ihamuotila reminded the audience that in 2012, sales of mobiles were down in Q1 but then rebounded in Q2, alluding to the possibility, or maybe likelihood, that the same pattern would play out this year.

About Nokia Siemens Networks, Stephen Elop said:

NSN had another strong quarter. Their impressive results have exceeded expectations, and we are delighted with NSN's competitiveness in the key markets and geographies on which they are focused. This is the fourth quarter in a row of underlying profitability for NSN demonstrating that NSN is a strong partner for his customers. External market share data continues to reinforce that NSN has become one of the top venders in LTE, which is where we believe the attractive growth and margin will be in the coming years.

Ihamuotila added during the Q&A:

...at the moment NSN's mix by contract is actually looking better than it was at the latter part of last year.

Trading Strategies

The way I see it, there are two trading strategies going through earnings depending on if your investment in Nokia is in the green or in the red.

1. For those that are in the green, you could sell parts of your holding during the rise before earnings, and repurchase on the inevitable dips. You may get lucky and buy in to considerable dips as we have seen in recent quarters. If for some reason, you sell and the stock goes up considerably and does not go down past the price of your earlier sales, then you have at least not lost any money. However, if you had intended all along to stay in Nokia no matter what but were just swing trading, paying more for something you already owned is like losing money, no matter if you are able to convince yourself of the opposite.

2. For those that are in the red and intend to hold on to Nokia for several quarters yet, selling into the price rise before earnings is adding risk. You may end up buying cheaper but it may also cost you more money. In that case, sitting on your hands, however difficult that may be, could be the best strategy. If you believe the price will rise with time, you should be able to stomach with an antacid another short term decline. If you are in the middle, that is to say that if you suddenly find yourself in the green during the price rise, you are then taking on the same risks by selling parts of your holding as those that were already in the green.

Caution: Heavy Price Fluctuations Ahead

Remember, no matter if Nokia meets or beats expectations, analysts will find negative things to say to knock down the stock price, such as:

A) Nokia's reduced cash position and cash burn are worrisome; point to S&P's bond rating downgrade again
B) The company has taken on more risk with the purchase of the rest of NSN, a company that operates in a cyclical business, highly affected by macro-economic factors
C) Windows Phone is not catching on; it's market share is tiny compared to Android (NASDAQ:GOOG) and iOS (NASDAQ:AAPL)
D) Mobile phones are becoming obsolete and Asha cannot compete with cheap Android smartphones; just look, manufacturers in Asia are eating Nokia's lunch

The only certainty about Nokia's share price is that there is no certainty. The launch of the Nokia Lumia with a 41 megapixel camera on July 11 may act as a catalyst, but you can be sure, as the sun will rise tomorrow, that those that stand to gain from knocking Nokia will put on their 'A' game and go to work, just as they did during the recent NSN purchase. Even though NSN has been profitable lately, the purchase does add risk, and bears will emphasize it to their advantage.

Perhaps the best strategy of all may be the hardest, which is to ignore all things Nokia for the next 30 days and come back and read about it like a whodunit novel, because there will be drama, but there does not need to be any blood. If you believe in Nokia's longer term prospects, the noise coming from all players commenting on Q2 earnings is just that, noise.

Disclosure: I am long NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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