Bernstein raises doubts about Nokia's cash position


Nokia's (NOK -3.4%) cash position is "less comfortable than it looks," Bernstein argues, saying that the company's Q2 net cash flow of €3B at its handset division doesn't take into account "a number of hidden liabilities."

Nokia's negative operating working capital, expenses, provisions and the money it owes Microsoft represent €4.8B of obligations that aren't reflected in the net cash number.

In addition, prepaid expenses of €2.1B could be worth nothing if adjusted for "likely write-downs."

Bernstein "wouldn't be surprised" if Nokia announces another restructuring and a strategy shift by the end of the year.

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Comments (39)
  • Jonathan Bluhm
    , contributor
    Comments (403) | Send Message
     
    Sounds like Bernstein really just wants to get more shares at a cheaper price. This info seems manipulative, like other analysts wouldn't have caught onto this already if it were true? Come on Bernstein, drive that share price lower for me. Can it get below $4 again?
    27 Aug 2013, 09:05 AM Reply Like
  • gwynfryn
    , contributor
    Comments (6458) | Send Message
     
    Hmm, pm, does he count the income from NSN? That should make good the stated deficit in four years or so (and I'd guess they could struggle along for that long...).
    27 Aug 2013, 09:12 AM Reply Like
  • Davidoff
    , contributor
    Comments (409) | Send Message
     
    What did you expect, a company struggling to break even for years would nevertheless build a strong cash position? It's not manipulative, it's common sense. I'm surprised that we waited that long to see someone finally raising these concerns.
    27 Aug 2013, 09:26 AM Reply Like
  • Genesis Housing
    , contributor
    Comments (402) | Send Message
     
    How can you analyze Nokia cash position and ignore an entire division?? It is just total nonsense. He says there are hidden liabilities, he is ignoring a very obvious asset in NSN
    27 Aug 2013, 10:03 AM Reply Like
  • HarryPothead
    , contributor
    Comments (245) | Send Message
     
    You said it.

     

    Don't give these shorts the pleasure.
    27 Aug 2013, 11:07 AM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    David

     

    Yeah, I loved the comment "a number of hidden liabilities." Really? Hidden from whom?
    27 Aug 2013, 03:46 PM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    Gen,

     

    Dechutes bank explained that one. NSN has reached its "roll over" point.

     

    Hmm, Nokia as a company reached it "roll over point" over 10 years ago. We already know that. We also know that if the WP program doesn't gain traction, Nokia will either go bankrupt, restructure, dumping all non profitable departments and becoming a smaller company, or sell itself.

     

    It's a spec, duh.

     

    You know what I think? I think "Smart Phones" that have locked down platforms, such as Apple and WP compared to Android, will quickly reach their inflection point. Sure, they will grow as feature phones are phased out, but no one company can innovate like an entire world of people, and thus people will get bored with their "daddy knows best" app platforms, and since development, open source, and since innovation continues on open platforms, Android will eventually win the day (As will Linux). Either that, or Apple and MS will necessarily need to open their platforms.
    27 Aug 2013, 03:49 PM Reply Like
  • Timothy Bryan
    , contributor
    Comments (984) | Send Message
     
    A friggin tool...
    27 Aug 2013, 09:14 AM Reply Like
  • Genesis Housing
    , contributor
    Comments (402) | Send Message
     
    I cant emphasize this enough the Bernstein analysis IGNORES NSN totally..How can you do that when it is 100% NOKIA OWNED. His anlaysis his Nok excl NSN. I read the note, it is total nonsense. The problem is people who dont know the story will see the headline. Just lunacy, it is like writing about Apple but deciding to ignore their most profitable division in your analysis
    27 Aug 2013, 09:58 AM Reply Like
  • HarryPothead
    , contributor
    Comments (245) | Send Message
     
    Yup
    27 Aug 2013, 11:08 AM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    Gen,

     

    NSN has reached its "roll over" point. Don't you listen to Dechutes Bank? Come on man.

     

    If they are so sure of themselves, I would expect to see a lot of hedging on their part.
    27 Aug 2013, 04:00 PM Reply Like
  • villevittumainen
    , contributor
    Comments (11) | Send Message
     
    Bernstein statements are empty. The question is when they will be irrelevant.
    27 Aug 2013, 09:15 AM Reply Like
  • WhatdoIknow1
    , contributor
    Comments (652) | Send Message
     
    Is this that Pierre guy again. The guy who first predicted bankruptcy and now predicts a break up. I think his price target is 1.80$. The growth of windows phone doesn't have anything to do with Nokias demise does it? How smart is he? Seeing as how he's been wrong so far. I'm not sure what these hidden liabilities are and I don't think he is either or he would have clearly listed them as proof of his argument not just thrown out some titles so you could wonder what was what.

     

    There are early signs the latest models of the Asha are doing well and the 520 Lumia is a world wide hit. The 1020 is currently the king of all the smart phones and NSN just won new China contracts. Delta has adopted the 820 as it's company phone preferring the windows operating for it's superior speed(10% faster than the others tested) and near field communications ability.

     

    The other analyst are predicting profitability by the end of this year. Bernstein has his own agenda.

     

    Long Nokia
    27 Aug 2013, 09:17 AM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    I can get the 521 for 99.00 no contract at Metro PCS. As I have stated elsewhere, I won't be buying a WP simply because MS has locked out innovation. It offers me nothing, even though I am long Nokia, and if I need a smart phone, I'd go Android, since it's open and I can run whatever I want to run on it, without MS permission. That infuriates me. That's why I never even look at Apple products. Too locked down.
    27 Aug 2013, 04:02 PM Reply Like
  • dhdhoora
    , contributor
    Comments (763) | Send Message
     
    Once again, Bernstein is out to get Nokia. Continues to amaze me that they are so blatant in their trashing. Why not publish actual models etc. that support their thesis instead of making comments like "adjusted for likely writedowns". Would really like to know what they are...

     

    All the very best,
    Don
    27 Aug 2013, 09:18 AM Reply Like
  • richto
    , contributor
    Comments (219) | Send Message
     
    Isn't this the same chimp that lost his customers bundles the last time he told them to short Nokia?
    27 Aug 2013, 09:20 AM Reply Like
  • Randal James
    , contributor
    Comments (4415) | Send Message
     
    He's gone downhill ever since getting that role as the eccentric professor in Back to the Future.
    27 Aug 2013, 09:31 AM Reply Like
  • Redrut
    , contributor
    Comments (1806) | Send Message
     
    FYI, I agree with his cash assumption but I still see the stock as a buy
    27 Aug 2013, 09:45 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    If you have time, it would be great to get your analysis of this in a full length article.
    27 Aug 2013, 09:49 AM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    Red,

     

    I do too, but we already knew that. He states it likes it "NEWS TO THE WORLD!" He's just a hype.
    27 Aug 2013, 04:05 PM Reply Like
  • Bluismycat
    , contributor
    Comments (75) | Send Message
     
    It's funny, over the weekend I was reading a story on Seeking Alpha about how nobody took any notice about Delta Airlines because it was good news for Nokia but how everybody would jump up and down if there was bad news, real or imagined...low and behold what has happened?!? No change in share price from Delta...price drops from some gooses vague assertions...go figure
    27 Aug 2013, 09:51 AM Reply Like
  • DWD Investing
    , contributor
    Comments (13054) | Send Message
     
    blu,

     

    You have to admit, however, the Delta deal is chump change. How many "deals" would they need, like that, to turn a profit? About a million. It's one of those things that sounds great because a corporation bought X product, but really, it's nothing.
    27 Aug 2013, 04:07 PM Reply Like
  • Bluismycat
    , contributor
    Comments (75) | Send Message
     
    dwd,

     

    Of course Delta is only small but it is NOT negative. What I am saying is...say the story was " Delta Airlines Rejects Nokia Lumia WP8" . How much press do you think it would have got?

     

    It all just reeks of subjectivity...
    27 Aug 2013, 10:28 PM Reply Like
  • Genesis Housing
    , contributor
    Comments (402) | Send Message
     
    Here are my thoughts. Amazingly in this note which analyses NOKIA's balance sheet and cash flow he totally ignores NSN as well as other huge flaws!

     

    Bear's note on NOKIA is full of spin
    It is interesting as being outside the mainstream finance world can really see how much is 'spun' by the street to suit purposes. I witnessed it with the single family housing IPO where several factors that was not actually positive was spun as such. Today's Bernstein report on Noks is in a similar vein and unhelpful as continues to create a cloud of uncertainty over the company, & its' balance sheet. Given is quite a complex story with several moving parts, it is enough to put off investors from looking into it. However the blatant spin is as such..

     

    In this report, he writes about Nokia's cash position but totally ignores NSN. Not sure how can do that given Nokia now owns NSN 100% and given it had about E1bn+ of net cash on its' b/s and generated E1.36bn FCF in 2012 & likely can do E700m+ FCF sustainably going forward that is the whole point, the very cheap acquisition has shifted the cash profile of Nokia even without a turnaround in the rest of the business. Conveniently NSN is totally excluded from his analysis which anyway is floored.

     

    1) Including NSN, Nokia's net cash position as reported Q2 was E4.1bn, not E3bn quoted.
    2) Bernstein quotes MSFT payments as a negative but the MSFT payments are volume dependant ie. it will only be paying MSFT a lot of money if selling tons of Windows Phones and as such generating a lot of volumes which will be reflected in higher operational cash flow.
    3) Conveniently E2.1bn of prepaid expenses are assumed to be worth zero as apparently they are all maybe going to be written down. No explanation as to how or why the entire E2.1bn of prepaid expenses gets written down to ZERO

     

    In the investment conclusion as negatives Bernstein quotes

     

    1) Symbian is disappearing:' Everyone knows Symbian has disappeared and has fallen out of the numbers as they abandoned the platform for Windows Phones

     

    2) 'Windows Shipments..reflect low traction': Lumia volumes just grew at 32% QoQ & in Q3 will likely grow over 200% YoY given only 2.9m Lumias were shipped in Q3 13. I would not be surprised if US Lumia sales doubled from low base of 500,000 in Q2 13 to E1m in Q3 13.

     

    3) Is skeptical that Nokia will create a meaningful presence is the high end smart phone market..This ignore that ALL the growth in smart phones is in the low to mid end with the $100 - $200 segment likely to double volumes in 2013. This is Nokia sweet spot, their ASP was E157 vs Apple at $581 last quarter. They are in different segments. Also emerging market are where the next billion of smart phone users are coming from and Nokia is well positioned.
    27 Aug 2013, 09:56 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @GH Thanks a bunch for your analysis!
    27 Aug 2013, 10:06 AM Reply Like
  • Randal James
    , contributor
    Comments (4415) | Send Message
     
    Hi Genesis,

     

    Agree with what you say about omissions. I've seen this sort of singular vampire reporting before and it often comes from two directions. The fabled misdirection is to cover either for the firm, who is eagerly accumulating for itself, or sometimes to cover for other institutional buyers doing the same thing or even a potential acquirer. After all, if you can 'scare' the price down to around $4 by keeping little folks worried, a buyer would look like a saint at $5.50 Not so much if the price rose and stayed at $4.75 [I am NOT making the case that NOK is a buyout candidate.]

     

    Goldman Sachs was relentless in doing this in the bubble era and others did the same but without so much gusto.

     

    But let's pretend we are writers for Bernstein or Cowen. I can say without a shred of doubt that there are companies or industries I would be negative on. I don't like anything that's going on with our ugly stepsister BlackBerry, for instance. The railcar manufacturers have had a decent run because of lots or oil cars being made for the Bakken deposits yet eventually there will be pipelines. And screw the airlines! Last time I was on a United flight the plane was so packed they made 6 mosquitos get off. One can imagine the indignant howls that would follow my 'research' notes.

     

    On more local issues, ol' Kofi cannot write a pleasant thing about Nokia. Ask any diehard Apple fan and - once he's removed his long nose from the oxygen-rich Apple ecosystem - he'll blink with undisguised loathing and snarl that Nokia isn't fit to fold his socks.

     

    So we do what we must. We re-examine the stock we thought we had every reason to believe in. Could we have been so wrong? Does every analyst hate it or just Senor Poopycabeza? Same with the posts here. I've about lost my taste for lingonberries.

     

    One more tip for some of you who are newer to trading. Big time military events are usually negative catalysts for stocks. It's that RISK thing again. The stocks that fall the most are usually the ones doing well with unconsolidated gains - the old profit-taking syndrome in full-flower. This is almost always an excellent time to buy on the pullback you've been waiting for.

     

    Reversals in quality names are usually quick and generous. I doubt very much that we are happily wading into another ground war in the region. So there will be a swat on the wrist or a kick to the groin and not much else.

     

    I've heard the military is using a secret weapon: Remember the Soup Nazi from Seinfeld? He's been hired and is warning the Syrians, holding up a Nok 520. "Won't behave? No Nok for YOU!!"
    27 Aug 2013, 10:36 AM Reply Like
  • ted lujan
    , contributor
    Comments (1668) | Send Message
     
    Who is this clown? does some one actually employ him to do analysis? To give him the benefit of a doubt, He must have some hidden agenda.
    27 Aug 2013, 10:16 AM Reply Like
  • Aasmul
    , contributor
    Comments (72) | Send Message
     
    He is probably just trying to earn himself a higher position when he inevitably moves on to RBC.
    Its actually quite funny how the sell side deploy their "expertise" when it comes to Nokia. RBC(and how has their beloved BB been fairing? :D ), Bernstein and DB on one side constantly screaming that Nokia's death is imminent and that all investors are going to loose their shirt. And on the other side JPM constantly proclaiming the deal of the century(which it better be for JPM's sake)
    27 Aug 2013, 10:30 AM Reply Like
  • flybywire54
    , contributor
    Comments (714) | Send Message
     
    I put aside NSN for a moment as i don't know their figures , and Nokia has spent quite some money purchasing the 50% shares of siemens . HERE is loosing money continuously not a center of profit . Then the D&S business is not only based on lumias which are doing well at the expense of falling ASP but also on features phones and basic phones . If the feature phone segment underperform then as demonstrated in Q1and Q2 Nokia is loosing money . If it performs then Nokia is making money as in Q4'12 . Everyone knows that feature phones in general are on the decline and I do not think as a result that Nokia will be profitable this year . I suspect that at one point or another the feature phone segment will have to be restructured and quite many people might loose their job .
    Nevertheless I recognize that the potential is tremendous with Microsoft so I remain long Nokia . But without too much expectation in the short term .
    27 Aug 2013, 11:15 AM Reply Like
  • Chancer
    , contributor
    Comments (4180) | Send Message
     
    What NOK owes MSFT is not like 3rd party bank debt. If NOK did have a problem, MSFT would be accommodating and flexible in their own self interest. MSFT pressuring NOK would be shooting themselves in the foot.
    27 Aug 2013, 12:33 PM Reply Like
  • kimsky
    , contributor
    Comments (45) | Send Message
     
    ''Bernstein "wouldn't be surprised" if Nokia announces another restructuring and a strategy shift by the end of the year''

     

    How vacuous is that? Sounds to me exactly like Mark Sue of RBC stating earlier in the Year that Nokia would announce a 2nd Quarter profit warning.

     

    He lost out on his $18 per share for Blackberry too

     

    Long NOK, this is just noise.
    27 Aug 2013, 02:14 PM Reply Like
  • AdamCB1
    , contributor
    Comments (84) | Send Message
     
    I'm getting out of Nokia asap....run, run...
    27 Aug 2013, 03:22 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Just as a friendly reminder, Nokia is far from running out of cash anytime soon...

     

    Nokia has 2.25B EUR ($3B) of unused / untapped credit available :

     

    "...Nokia notes that it also has access to additional liquidity via a revolving credit facility of EUR 1.5 billion, which is entirely undrawn and available to the company through March 2016. Nokia Siemens Networks also has a EUR 750 million revolving credit facility that is entirely undrawn and available through June 2015..."

     

    Also:

     

    "...At the end of the second quarter 2013 and prior to the closing of the NSN transaction, Nokia Group had gross cash of EUR 9.5 billion and net cash of EUR 4.1 billion..."

     

    http://bit.ly/14mHwgD

     

    And, that the NSN purchase was financed w/ relatively small effect on net cash:

     

    "...The purchase price totals EUR 1.7 billion, of which EUR 1.2 billion will be paid in cash at the closing of the transaction. The balance of EUR 0.5 billion will
    be paid in the form of a secured loan from Siemens due one year from closing. Nokia has obtained committed bank financing for the EUR 1.2 billion cash
    portion..."

     

    http://bit.ly/MfwTFo
    27 Aug 2013, 03:26 PM Reply Like
  • TheMasterPlan
    , contributor
    Comments (102) | Send Message
     
    Thank you Seppo, for reminding us that NOK's cash position is hardly as dire as some analysts would have you believe.
    27 Aug 2013, 04:07 PM Reply Like
  • Genesis Housing
    , contributor
    Comments (402) | Send Message
     
    Am actually writing up an article debuking this latest bear raid. I tis incrudulous..how can you analye and make conclusions on the balance sheet and cash flow profile of a majoe company and totally exclude one division from your analysis.

     

    It is not about who does or doesnt have a crystal ball in the smart phone space. It is about playing fair and representing the facts of an investment case correctly to your clients who are sophisitcated and can make decisions. This sort of headline Bernstein being worried about nokia's cash profile will put investors off from even looking into it.

     

    I love analogies so am thinking it is like writing a bear note on Apple but ignoring i -phone, or Daimler but ignoring mercedes, or on Micron and ignoring elpida..any other analogies jump to mind.
    27 Aug 2013, 07:41 PM Reply Like
  • Genesis Housing
    , contributor
    Comments (402) | Send Message
     
    Also the reason he ignore NSN is because he has not consolidated it into his number since the deal..are you kididng me it is summer in Europe..why waste time doing that. Just make up some stuff till get consolidated numbers and hope you are right, even if for the wrong reasons!? This note says so much about what is wrong with the sell side..they are too busy playing internal politics, or pretending to phone clients to climb up some internal CRM system to actually do any real work. Much easier to spin some noise and hope to be right and look clever..Remarkable.
    27 Aug 2013, 07:43 PM Reply Like
  • growingwildgs
    , contributor
    Comments (107) | Send Message
     
    Wow, it is amazing to read such blatant negativity. I believe they are a bit pissed that someone may be stepping on Samsung and Apple and may cut into their profit margins. How invested are they into those two stocks and that will be the answer.
    27 Aug 2013, 09:14 PM Reply Like
  • Bluismycat
    , contributor
    Comments (75) | Send Message
     
    Genesis Housing Randall James & Seppo2.

     

    Thank you for providing some clarity and sanity on this subject!
    27 Aug 2013, 10:54 PM Reply Like
  • Want2buygold
    , contributor
    Comments (64) | Send Message
     
    If there are hidden liabilities , then short BIG TIME...
    29 Aug 2013, 05:58 AM Reply Like
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