Nokia (NOK-$22-Cap $103.4B-Strong Buy)
Tim Long/ Marc A. Cabi / Ian Burgess, 415-836-8626/7701/ +44 20 7888 0271
Staying above consensus FY01E: $0.87 FY02E: $1.12
· Industry-wide pessimism in the past few months has lead to significant downward revisions
to industry estimates and recommendations in the expectation of worse news to come. The
uncertain economic outlook, especially in North America, creates risks to numbers, although
we believe that the market has accounted for this factor.
· We believe Nokia is set to emerge stronger than any other industry player. This difference in
performance is already evident as Nokia inventory in the channel is considerably lower than
its peers and the company continues to dominate the top sellers list at distributors.
· We are lowering our market assumption to 500 million units for 2001 to reflect the
deterioration in consumer confidence and build-up of channel inventory. We note that this is
still above consensus, as we believe semiconductor companies could overstate this
downturn as they did on when demand was accelerating in Q1:00.
· We have trimmed our Nokia estimate from $0.92 to $0.87. As we highlight in our note, even
a 30% downgrade to our numbers-consistent with a below 450 million unit number this year-would
still leave the shares no worse than fairly valued at 30x 2001 earnings.
· Against almost any benchmark-its peers, its history, cash or bonds-the stock is trading at
unusually low levels. Even factoring in a large downgrade for 2001 and 2002 would still leave
the shares looking attractive. We retain our Strong Buy recommendation.
Qualcomm (QCOM-$54.81-Cap $44.2B-Hold) Long/ Cabi, 415-836-8626/7701
The Business Case for CDMA FY00E: $1.05 FY01E: $1.22 FY02E: $1.55
· Qualcomm used its 2001 analyst day and mobile data briefing to present a favorable
business case for deploying CDMA 1X and CDMA 1X-EV. The company is banking on its
primary CDMA carriers leading by example in having a successful 1X rollout to sway new
operators to its path.
· In the shorter-term, management is looking to areas such as the CDMA deployment in
China, a limited mobility CDMA network in India, 450 MHz deployments in Eastern Europe
and a rapid 1X upgrade cycle to stimulate new opportunities for growth.
· We continue to believe material licensing revenue from W-CDMA will be in 2004 at the
earliest, increasing the reliance on the emerging markets as the interim growth drivers.
· The co. pointed to its desire to continue to take stakes in carriers to expand CDMA. In 2000,
48% of a $598 cash outflow from investments went to positions in CDMA wireless operators.
We believe investors will need to monitor these investments, considering the challenges a
new wireless operator could face fully funding a new network build in this environment.
· We believe the company could show about $0.02 upside in March due to increased licensing
accruals from stronger than expected December handset shipments. We are maintaining
estimates, as we believe the US slowdown and channel inventory build-up could limit FY01
growth. We maintain our Hold.