Friday, February 11, 2011

Nokia: Canaccord Reports From The Scene; QCOM The Big Winner

Sprinting from today’s Nokia (NOK) analyst meeting in London, where Nokia tossed its emergent operating system, MeeGo, to the weeds, and got into bed with Microsoft (MSFT), Canaccord Genuity analyst Mike Walkley was kind enough to spend a couple minutes by phone to give me his impression of the meeting.

Nokia shares are down $1.46, or 13%, at $9.42, while Microsoft shares are down 16 cents, or half a point, at $27.34.

Two big takeaways: The deal with Microsoft is not actually finalized, and the fruits of the deal are not clear.

“They have a framework of their intentions,” Walkley points out, but it’s disappointing that nothing has actually been signed, he said.

And CEO Stephen Elop gave no timeframe as to when we’ll see the first Windows-based smartphone from Nokia. He did say that the company expects “to ship in volume” phones running Windows Phone 7 next year, but he wouldn’t commit when asked if there’ll be devices as early as the fourth quarter of this year.

Nor did Elop give any indication of what cost savings may come from the deal, says Walkley. Nokia has perhaps the highest cost structure of any manufacturer. Investors today were interested in hearing about possible cuts of half a billion to a billion euros per year, but all that Elop would commit to is that the company expects it can make some cuts in R&D.

And what about the rest of the Nokia portfolio? Nokia is winding down its Symbian effort, with 150 million phones expected to be shipped from here on out, and it sees bringing Windows down the price chain to mid-tier devices, Walkley tells me.

“One of the reasons for their going with Microsoft is that they felt they could quickly move Windows to lower price points quickly,” says Walkley.

And for the lowest-priced phones in the portfolio, the Series 30 and Series 40 phones, they’re not going away right away, maybe not ever. Walkley says the company pointed out that “they sell a million Series 30 and 40 devices per day,” so there’s still a lot of volume there to try and hang onto. Elop’s plan is to invest a little more to differentiate those low-end phones, to try and distinguish them from what the company refers to as the “Shenzhen crowd” — a reference to China’s bustling manufacturing sector that produces tons of cheap phones.

Walkley says Elop expects strong carrier support for Windows because it’s something different, as opposed to offering still more phones based on Google’s (GOOG) Android platform.

But Walkley also observes that Nokia was at this point just too far behind to go with Android. “They wouldn’t really have achieved anything other than to further lower the price of Android phones,” he remarks.

Walkley’s positive, overall, with a Buy rating on Nokia shares. He really thinks they can make a go of it in smartphones with Windows. He does acknowledge that with much if not all of the portfolio now a lame duck, “there’s certainly a risk in the intermediate term they will lose market share.”

Walkley advises the stock is “one to start doing some work on” if you’re a long-term investor, but he expects the shares “may trade sideways” in the “intermediate term,” by which he means the next six months, or so.

A better investment, perhaps, is Qualcomm (QCOM), which has almost the entire Windows Phone 7 market to itself, and which now stands a very good chance of getting back into the Nokia account, where it has had almost no business since the two settled their patent dispute some years ago.

Walkley has a Buy rating on Qualcomm and a $67 price target, and he argues that they are really “the biggest winner” from today’s announcement.

Indeed: Qualcomm shares are up 33 cents, or half a point, at $57.33.

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