Nokia's Woes Spreading to Suppliers

| About: Nokia Corporation (NOK)

By Angus Robertson

The news for Nokia (NYSE:NOK) just keeps getting worse, with Standard & Poor’s this week following Fitch in downgrading the company’s debt and Moody’s likely to do the same. Meanwhile chief technology officer Richard L. Green, an American who joined Nokia last year from Sun Microsystems, took a leave of absence and is not expected to return.

Standard & Poor’s cut the company’s ranking one level to BBB+, two days after Fitch Ratings downgraded it to BBB-, a step above speculative grade.

Nokia said Mr. Green had taken a leave “to attend to a personal matter.” The Helsingin Sanomat newspaper reported that Mr. Green was unhappy with management decisions, including abandoning plans to introduce devices based on the MeeGo smartphone operating system that had been under development with the chip maker Intel (NASDAQ:INTC).

And CEO Nokia CEO Stephen Elop continues to fend off rumors of a sale or merger.

HSBC joined many other analysts in cutting its price target on the stock, to 4.40 euros from 6.50 euros.

Nokia’s continuing slide is starting to raise questions about the impact on its suppliers. As Rolfe Winkler notes in the WSJ , Texas Instruments (NYSE:TXN), among the biggest suppliers of chips to Nokia, said Wednesday that its revenue and earnings will also miss expectations. It blamed the entire shortfall on its struggling Finnish customer. Analyst Chris Caso of Susquehanna said in a note to clients that TI’s commentary about Nokia is “surprisingly bad,” even after Nokia’s comments last week. TI’s stock was little impacted, though, since it is winding down its so-called “cellular baseband” chip business. This makes up the bulk of its sales to Nokia.

But there are other big Nokia suppliers that could feel the heat, too, according to data from IHS iSuppli, including chip makers RF Micro Devices (RFMD) and STMicroelectronics (NYSE:STM). While both companies also sell chips to Samsung, whose handset business is stronger, they sell far more to Nokia.

Bloomberg reports that Nick James, a London-based analyst at Numis Securities Ltd., cut his profit estimate for semiconductor maker CSR this month on concern over slower sales at Nokia and Research In Motion Ltd. (RIMM).

But, with an 8.6 per cent yield and a cost of only six-times cash flow, Nokia’s stock is becoming attractive, argues TheStreet.

“Despite the stock drop, the company has an impressive product lineup and outstanding emerging-market exposure. Nokia generates just 3.8 per cent of its sales in the U.S., compared with nearly 17 per cent in China, 7 per cent in India, 4.1 per cent in Russia and 3.6 per cent in Brazil.”

“. . .from a valuation perspective, it’s never been a better time to buy. Nokia has extremely valuable overseas assets and may attract buyout interest, given its equity’s recent tailspin,” the Street adds.