On July 19th, Nokia (NOK) will announce its quarterly earnings. It is certain that this will be one of the worst quarters of Nokia's history and the company will post a loss, mostly due to its restructuring costs. Fortunately, many of the disasters that may or may not come to Nokia have already been baked in the share price of the company. Nokia's current share price suggests that the investors are 99% certain that Nokia will not be around much longer and that they expect the worst from the company.
What should faithful investors of Nokia look for at Nokia's earnings? I think there are a few things to look at in Nokia's earnings to see how well the company will perform in the long run.
First, I would like to hear a date on when Nokia's Windows Phone 8 will be released. Given the company's recent price reduction of Lumia 900, I am predicting that Nokia's Windows 8 phone might not be that far away. It was rumored that Nokia would be the first company to launch the phones that run on Microsoft's (MSFT) latest operating system. In order to sell in a variety of countries before the holidays, the phone would have to be launched during the third quarter. This is one of the first things I will look for in Nokia's earnings report.
Second, I will look at how well Lumia 900 is selling. Initially, many people including Scott Anderson, the VP of Best Buy Mobile claimed that Lumia 900 was selling very well. Later on, other rumors surfaced, claiming that the phone wasn't being bought in enough quantities. I am curious to find out how many Lumia 900s Nokia was able to sell in the last quarter. This was the first quarter ever when Nokia had a full quarter to market and sell this phone in the US. Additionally, the phone was introduced to countries like China during the last quarter as well.
Third, I will look at how Nokia/Microsoft partnership is going and what Nokia's contingency plan is. Existence of Nokia's contingency plan was mentioned by the company's management but specifics were not provided. It would also be nice to hear if Microsoft will increase the extent of help it is offering to Nokia. Currently, Microsoft pays Nokia $250 million per quarter for the Windows Phone project.
Fourth, I will keep an eye on the company's estimate of when it will return to profitability. In the last 3 announcements, the company refused to give a specific date; however the management kept saying that the company hopes to return to profitability as soon as possible. The company's operating margins will be very interesting to see. Nokia is expected to make a small profit on Lumia 900s but not enough to offset the losses on the Symbian phones.
Currently there are 20 analysts covering the stock and their estimates for the second quarter range from a loss of 28 cents per share and a loss of 1 cent per share. The average estimate is a loss of 11 cents per share. Currently the short selling interest is at all time high for Nokia. I expect a lot of volatility in this stock for the next week or two regardless of how the results turn out. There will be a lot of short selling and possible a lot of short covering in the next week.
Currently Nokia is so cheap that the worst of the worst is already baked in the stock price. Anything short of bankruptcy should be very bullish for Nokia.