Nokia (NOK) reported its Q2 earnings today (July 19) at 13 CET:
- Nokia net sales in Q2 2012 were $9.2 billion, up from $9.1 billion in Q1 2012.
- Nokia non-IFRS EPS in Q2 2012 of $0.10, level with Q1 2012.
I see at least 4 reasons to buy the stock currently:
1. The stock is currently trading below gross cash
Nokia reported both gross and net cash higher year-on-year.
- Nokia ended Q2 with gross cash of $11.6 billion and net cash of $5.2 billion.
- Net cash lower quarter-on-quarter, after $912 million annual dividend payment to shareholders.
- Nokia Q2 net cash from operating activities of positive $125 million, including receipt of $492 million pre-payments from existing IPR licenses.
Nokia has 3.7 billion shares outstanding which creates net cash of $1.40 per share and gross cash of $2.54 per share.
2. Lumia Q2 volumes increased quarter-on-quarter to 4 million units
Commenting on the Q2 results, Stephen Elop, Nokia CEO, said:
We shipped four million Lumia Smartphones in Q2, and we plan to provide updates to current Lumia products over time, well beyond the launch of Windows Phone 8. We believe the Windows Phone 8 launch will be an important catalyst for Lumia. During the quarter, we demonstrated stability in our feature phone business, and enhanced our competitiveness with the introduction of our first full touch Asha devices.
3. Nokia Siemens Networks returned to non-IFRS operating profitability in Q2
| Q2 2012 | Q1 2012 | |
| Non-IFRS operating margin (%) | +0.8 | -5.0 |
Outlook:
- Nokia and Nokia Siemens (SI) Networks expect Nokia Siemens Networks non-IFRS operating margin in the third quarter 2012 to be above the second quarter 2012 level of 0.8%.
- Nokia Siemens Networks continues to target to reduce its non-IFRS annualized operating expenses and production overheads by $1.23 billion by the end of 2013, compared to the end of 2011.
4. Nokia continued to strengthen its patent portfolio and filed more patents in the first half of 2012 than any previous six month period since 2007
- Nokia received $492 million pre-payments from its existing IPR licenses in Q2
- Nokia estimates that its current annual IPR royalty income run-rate is approximately $0.6 billion
Conclusion
I believe the gross cash level of $2.54 per share will attract the stock in the short-term. The next major catalyst for the stock is the launch of new Windows Phone 8 devices in Q4.
(Click to enlarge)
Disclosure: I am long NOK.
