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Financehulligan
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Private European Investor and Fulltime trader. Legally trained with focus on commercial law. For my buy and sell decisions, I use Elliott Wave Principle. Fundamentals and education helps me to understand where we are today and where we are headed. Annual P / E ratio = future lies Fibbo, Gun,... More
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  • Nokia Need More Money

    Last week was a week with Nokia (NYSE:NOK) surprising on both the positive and the negative sides.

    Tuesday January 8th, Nokia confirmed that Indian tax officials visited its manufacturing unit in Chennai in southern India. Local authorities said Nokia is suspected of tax evasion worth the equivalent of $545 million, according to Economic Times.

    The share declined down to € 2.85 in Helsinki after that news.

    Only two days later, Thursday January 10th, Nokia sent out a press release saying Nokia exceeds previous Q4 2012 outlook for Devices & Services and Nokia Siemens Networks making the share bounce up.

    The timing could not have been worse, regarding to an investor. Conference call to be held 25 minutes later after the press-release, at the same time as Mario Draghi, President of the European Central Bank held a press conference on the banks decision to leave interest rates unchanged.

    Before those two happenings, I counted on the debt that that expires in Feb. 2014. I wanted to know if the money from raising junk bond, diluting the share with 7%, not even 3 months ago, together with some other liquidity creation events would be sufficient and equal to pay the debt amounting EUR 1250 million exp. date Feb. 2014.

    During the autumn, Nokia has taken the following liquidity creation actions:

    - Issuance of junk bonds, EUR 750 million (23 October 2012)

    - Nokia sells and leases back head office building, EUR 170 million (5 December 2012)

    - Obtained a one-time payment from RIMM (RIMM), settling and entered into an agreement to resolve the present dispute between the parties. Nokia received EUR 50 million. The amount was confirmed by Nokia in press release 10 January 2013.

    During the autumn, Nokia also has taken liquidity destructive actions. These are:

    - Acquisition of 3D capture company, earthmine (The terms of the transaction are confidential.)

    I got full confidence in Nokia management and CEO Stephen Elop. Therefore I also believe that the amount raised in convertible bonds was carefully balanced to be sufficient without creating greater dilution than necessary for shareholders.

    I do not think there is a calculation error by Nokia management during the issuing of convertible bonds. Nokia has always been very accurate about their guidance.

    I also believe that none of the parties at this moment had knowledge about the arising tax problem in India that just showed up.

    I have read and calculated on the press release, listened on the conference-call, still do not think there was an actual reason to make this "profit warning", especially with regard to the weak outlook for the first quarter 2013. Nokia had a big helping hand from NSN during Q4, but I do not think anyone following Nokia on a daily basis did not expect strong number from NSN.

    A review of the guidance for Q1 2013, Nokia is telling us that we could not expect the helping hand from Nokia Siemens Networks to last in short term:

    "Nokia and Nokia Siemens Networks expect Nokia Siemens Networks non-IFRS operating margin in the first quarter 2013 to be approximately positive 3 percent, plus or minus four percentage points."

    And neither from their guidance for Devices & Services:

    "Nokia expects its non-IFRS Devices & Services operating margin in the first quarter 2013 to be approximately negative 2 percent, plus or minus four percentage points."

    And the guidance for business area Location & Commerce is also negative.

    "Nokia expects Location & Commerce non-IFRS operating margin in the first quarter 2013 to be negative due to lower recognized revenue from internal sales, which carry higher gross margin, and to a lesser extent by a negative mix shift within external sales."

    Why making a profit warning? The only reason that I could come up with is the one that is not mentioned either in the press-release or at the conference-call.

    By making the profit warning Nokia management is trying to buy time. The amount of non-paid taxes in India, EUR 545 million is equivalent to 54% of the junk bond money raised not even 3 month ago.

    The tax obligation arose before the 31 December 2012, and therefore Nokia normally would need to adjust its December 31 balance sheet and its income statement for the year 2012 for this EUR 545 million in tax debt expense.

    By acting fast (only 2 day later) Nokia management tries to move the starting point where they finalize and starts the distributing of the income statement for 2012, and tries to put the new tax debt in India as a statement, i.e. events after the balance sheet date, hoping that investors will not see through this.

    I hope that Nokia's management acts quickly and takes the opportunity to ask shareholders for more money now while the price of shares is relatively high. In that way, they could avoid diluting the shares more than necessary. Otherwise the question if Nokia needs to raise more money will hang like a wet blanket of the company's shares pushing down the price in the same way that it did during the spring.

    Hopefully Nokia shareholders gets the same discount as institutional investors did in the junk bond, i.e. 28 % conversion premium to the volume weighted average price of Nokia shares. I see no reason why they should not.

    Nokia later report was released 18 October 2012. Only 3 business days later they, on the 23 of October 2012 Nokia announced and completed a offering of EUR 750 million Convertible Bonds due 2017 with the purpose to:

    "intend to use the net proceeds of the offering to prudently manage its capital structure, proactively address upcoming maturities while preserving existing pools of liquidity and for general corporate purposes."

    That behavior from Nokia is also something to keep in mind. If you want to buy the share without risk to be diluted, you cannot be sure you will not be, not even two days after report

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NOK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: BBRY, NOK, short-ideas
    Jan 16 9:18 AM | Link | 5 Comments
  • Nokia - Lumia 920 Finish Telia Sonera Removed The Product From Webb-Shop

    Nokia CEO Stephen Elop has told us that Nokia got frustrating low supplies of the Lumia 920 without mentioning any sales figures, and now it seems like it even has effected the finish operator Sonera, that today did remove the Product from their Webb-shop.

    (click to enlarge)

    http://tinyurl.com/bffkm4s

    Same thing will probably happen to the Swedish Telia Sonera Webb-shop to, that has been claiming they had them in store since introduction, but never actually got them.

    Yesterday we also got information that the Australian operator Telstra (one of the first operator to sell the Lumia 920) got their second shipment. No, not kidding, the second shipment since the first one sold out 12 November 2012.

    How many Nokia Lumia 920 can Telstra have sold between 12 November 2012 and yesterday without having the phone?

    Disclosure: I am short NOK.

    Tags: NOK
    Jan 04 12:19 PM | Link | Comment!
  • Nokia Short Of Supplie But Lumia 920 Is Left On The Shelf

    As a stock trader, I can only lament and say that Nokia (Nok) seems to have failed to take advantage of this year's biggest social gathering - Christmas

    In an interview last week, Nokia CEO Elop submitted that it was frustrating low supply of Lumia 920, that people got in touch and asked when they can get the yellow device.

    The market reacted positively to his first statements, and news circulated that there was great demand for the Nokia Lumia 920, but then the market has pulled its horses back.

    After last summer, studying his world-famous memo in light of what has happened since he wrote it 2 years ago - I can say that he has a belt in his statements that few people understand. For the same reason, I also see a great business leaders in Stephen Elop and this characteristic is that he says just the way it is, nothing more or nothing less.

    See the full interview here:

    http://tinyurl.com/cogmuut

    That is not a good sign either. But it is again what CEO Elop told us, frustrating low supply. I do see the same thing in other parts of the world.

    Low supply in Russia, Australia, but also in Europe where Microsoft staff recently refrained from their personal Lumia 920 to make those devices "end up at consumers'. A highly unusual action. Most Nordic operators have not received Lumia 920 at all before this years end. The few stores which have received them have sold very few phones. The Swedish operator Tele2 has sold out of all 1600 phones. But hey presto, 1600 smartphones does not even get you into the ring!

    Above ideas is also supported by Kantars recent survey of smartphone market shares. http://tinyurl.com/cob2qyn

    But what did CEO Elop actually say?

    1. Frustrating low supply

    2. People got in touch and asked when they can get their yellow Lumia 920

    3. Positive feedback from people taking their devices home

    4. Shareholders come out strong during the crises

    I will not argue about the last two points. The Lumia 920 is a great device, knowing by being one of them who actually bought it. And I do not pay attention to any CEO talking about the shareholders.

    But the first two points makes me worried.

    Let us start with a quick look back on the autumn. Lumia 920 was introduced on September 5 in New York.

    From the start, information that was coming was that it appeared that Nokia had difficulty producing enough phones to meet even the smallest quantities by their carrier partners.

    But the shares has been traded by the market in what I think is a hope that the phones were out due to high demand.

    More recently, there have also been reports that Nokia is only capable of producing 600 000 Lumia 920 per month in its Chinese factory. Which calculated from October it would mean that 1.8 million Lumia 920 was produced last three months of 2012.

    Everywhere in the world, Australia, China, Russia, Germany, the Nordic countries, the United States, there has really only been available data suggest a low supply of phones.

    We have to get this into line with the reality we have around us in the world. There is no reason to enter into denial. This is what CEO Elop told us, and who should know better then him?

    A natural thing to expect with high demand and frustrating low supply, of course is that the products are sold out in the shops and people standing in line to have their devices. But that is not the case 2012.

    At AT&T, they got the black and the white Lumia 920 in almost every store collecting dust. Red Lumia 920 is only available in a few stores, cyan, and yellow is out of stock, but it is not because it sold out to incoming phones. AT&T havn´t had the yellow one since the mid November.

    Again it just confirms what CEO Elop told us. Frustrating low supply led to AT&T never got the yellow Lumia 920 in stores again since its introduction and cyan they have only got just a few devices.

    But then Nokia must have sold them in China? China Mobile was broadcast as a big news since they made it before Apple, and the Lumia 920 was for a brief moment at the top of the best-selling phone on Amazon China. I even did wrote a short Instablog that it was number one for at least a second.

    But today it is not even on the list of top 100 (iPhone 5 is in position 89).

    Windows Phone still has much left to prove, consumers are showing no signs today of acceptance by the operating system. And how could they without devices in the stores with salespeople marketing the OS al around the world?

    In this industry, certain dates are especially important. Such is the new year when they most companies do annual accounts, as Nokia does. Nokia has recently brought in extra money by issuing convertible bonds and sale and leaseback the HQ. The money is not intended to end up in cash for the shareholders, the lion's share is intended to solve some loans on the balance sheet.

    But was it the first and last time Nokia raised money this century?

    CEO Elop also said even one other thing in the interview above.

    "There will be some tough times. That is for sure"

    Without phones in store, and those devices that are not selling, a CEO confirming both "frustrating short supplies and some tough times, for sure" one must act with care, particularly in a share that has risen so sharply last month on what I believe is hope for a high demand that might not be as high as the market today hope.

    Read the above Instablog in light of the fact that Samsung's S Ativ not existed for Christmas shopping what normally would increase the demand on competitors devices within the same operating system. But Nokia did not manage to get the phones to disappear from store shelves this year, even without the strongest competitor within the Windows Phones eco-system.

    Nokia is in its transformation process as we all know. But missed quarter sales in the exposed location can really be an unforgivable mistake. I would not buy the share at this moment before the report - Wait for the report, January 24 2013, that may contain unpleasant reality for Nokia shareholders.

    Disclosure: I am short NOK.

    Tags: NOK, AAPL, MSFT
    Jan 03 11:10 AM | Link | 9 Comments
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