Nokia Corporation designs, manufactures, and sells a full range of mobile devices as well as network infrastructure along with services and software on a global basis. The company offers mobile phones and devices based on common mobile phone standards and offers devices that range from entry level to high-end, multifunction smartphones.
All amounts in US$ unless otherwise noted
Technology — Communications Technology — Wireless Equipment
NOKIA SELLS DEVICES & SERVICES BUSINESS TO MICROSOFT FOR ALL-CASH €5.4B TRANSACTION
Investment recommendation: With our global surveys indicating gradually improving Windows Phone 8 smartphone sales due to strong sales of the Lumia 520 and other mid/low-tier Lumia smartphones, we believe the timing makes sense for Microsoft to purchase Nokia’s Devices & Services business in order to fund stronger long-term growth trends. We maintain our HOLD rating but increase our price target to $5.50 ahead of Nokia’s 8 AM EDT conference call.
Microsoft will pay €3.79 billion to purchase Nokia’s Devices & Services business and €1.65 billion to license Nokia’s patents for a total transaction price of €5.44 billion in cash. We believe the transaction should close in the first quarter of 2014.
Our recent survey work indicated steadily improving sales of the Lumia 520 and other low/mid-tier Lumia smartphones. In fact, our surveys indicated solid Lumia 520 sales not only in emerging markets such as Russia and key APAC region countries, but also in developed markets such as the U.K. and the U.S.
We believe Microsoft with its strong balance sheet and increased focus on hardware devices can help accelerate the growing WP8 smartphone momentum. We estimate Lumia sales now constitute over 85% of WP8 smartphone sales. We believe Microsoft has recently worked more in concert with Nokia to drive sales, as evidenced by Microsoft’s advertising campaign featuring Lumia features and by Nokia 1020’s ranking as a top 3 selling smartphone at AT&T.
Stephen Elop is stepping down as CEO, as Nokia focuses on its three businesses of NSN, HERE, and Advanced Technologies.
Due to improving Lumia sales trends and prior to the acquisition closing , we slightly raise our 2H/C2013 and C2014 D&S handset sales estimates, resulting in our 2013 non-IFRS EPS estimate increasing from $0.04 to $0.06 and our 2014 estimate increasing from $0.07 to
Valuation: Our $5.50 price target (was $33.30) is based on our sum-of-parts analysis.
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