Nokia wobbles as brokers turn against struggling vendor

Nokia shares tumbled on Friday as stock market brokers downgraded the company following its poor first-quarter results.

Nokia CEO Stephen Elop

Elop

This downgrades, which followed a week of dismal news from Nokia, included Bernstein Research's decision to cut Nokia's target price from €3.10 to €2, while maintaining its "underperform" rating on the shares. Commenting on the revised target price, Pierre Ferragu, analyst at Bernstein Research, told the Financial Times: "Even €2 represents a stretch, at 14 times 2015 earnings."

Citi analyst Zahid Hussein also lowered Nokia's target price from €2.30 to €2.10, maintaining its "sell" rating on the shares. "Nokia is going through a painful transition which will take at least 18 months to resolve, in our view," said Hussein. "Visibility remains poor. At the same time the feature phone market is in decline and the low- and mid-end smartphone market is facing major margin pressure."

Nokia on Thursday reported a €929 million net loss for the first quarter as revenue dropped 29 per cent to €7.35 billion.

In an effort to reassure investors, Nokia CEO Stephen Elop promised to "deeply" lower prices of its new Lumia Windows Phone smartphones to compete more effectively against Asian rivals in emerging markets. "The price point of Android devices from a variety of manufacturers is quickly being pushed down," Elop told Dow Jones Newswires, adding there are gaps in Nokia's line-up of phones that it needs to fill swiftly. However, Elop declined to specify exactly when Nokia plans to launch these new cheaper Lumia phones.

Regardless of any new initiatives, Informa Telecoms & Media analyst Malik Saadi believes that a huge marketing campaign is needed from Microsoft to help get the Windows Phone 7 platform moving. "Pushing Lumia devices across operators' channels constitutes the biggest single challenge for Nokia, and Nokia will definitely have to increase its marketing budget and help operators to educate their salesforce to sell the Lumia devices," Saadi said.

Tony Cripps, principal analyst of devices and platforms at Ovum, supports this viewpoint and called for the mobile operator community to support Nokia's efforts so service providers are not left choosing between Apple's iPhone or Android-based products.

"There's little objectively wrong with many of the products competing with Apple, Samsung and Google/Android that greater customer awareness and a big budget marketing drive could not cure," Cripps said. "And that's something European carriers need to do a great deal more to assist the underdogs with if they aren't to be the engineers of their own self-fulfilling prophecy of handing all power over their subscribers to the duopoly of Apple and Google."

For more:
- see this Financial Times article (reg. req.)
- see this separate Financial Times article (reg. req.)
- see this Dow Jones Newswires article
- see this Ovum release
- see this Mobile Today article

Related Articles:
Nokia must take radical steps to stop its continued decline
Nokia's Q1 sales plunge as company posts $1.2B loss
Nokia: Lumia 900 sold out online but we're making more
Rumor Mill: European carriers slam Nokia's Lumia Windows Phones
Nokia defends financial position in wake of Moody's downgrade

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