Though Nomura's Rick Sherlund (Buy, $40 PT) is willing to give Microsoft (MSFT) "the benefit of the doubt" for its targets of 50M Windows Phone sales and $600M/year in cost savings for Nokia's (NOK) phone unit in FY15 (ends June '15), he nonetheless sees the division diluting Microsoft's FY14 EPS by $0.08, and its FY15 EPS by $0.06.
The reason? Sherlund expects the Nokia unit's feature phone sales, already nosediving, to drop 32% in FY14 to $6.8B, and 29% in FY15 to $4.9B. That more than offsets an expected 43% increase in smartphone sales (now entirely Windows Phone) from FY13 to FY15, to $8.4B. Thus, in spite of cost cuts, Sherlund sees the business posting a $630M FY15 op. loss, and a -5% op. margin.
The Nokia unit is coming off a quarter where it posted a $47M op. loss, a -1.6% op. margin, and a 19% Y/Y drop in revenue to €2.9B ($3.9B). Windows Phone (Lumia) volumes jumped to 8.8M units from 7.4M and 2.9M a year earlier, but their were sold at an ASP of just €143 ($194, -8% Q/Q), thanks to a mix shift towards sales of Lumia 520 and other cheaper models.
Nokia's feature phone units totaled 55.8M, +4% Q/Q and -27% Y/Y. The devices were sold at an ASP of just €27 ($37), +4% Q/Q and -13% Y/Y.