As the dust starts to settle after Tuesday?s announcement that Nokia Corp. is selling its handset business to Microsoft Corp., investors are waking up to a new leaner company with arguably brighter prospects than the old beleaguered business.
Nokia?s handset business used to be the glorious centerpiece of a global technology heavyweight, but its fall from grace the past few years has been rapid and brutal.
Here is a roundup of what analysts around the globe have to say about Nokia?s NSN networks unit and HERE mapping business.
In a note on Wednesday, Nordea's Sami Sarkamies said the sale of the handset business to Microsoft for ?5.4 billion? ?marks the end to one of the worst corporate strategies we will probably experience.? While noting that the reasoning behind Nokia?s tie-up with Microsoft two years ago will continue to debated, Nordea said Nokia got a fair price for the assets given the circumstances, and that it?s now able to kiss goodbye to its worries and start anew as a ?solid, smaller version of Ericsson.?
Mr. Sarkamies added that the new Nokia should now be seen as a likely acquisition target, especially for Samsung Electronics Co. The Korean company has been looking to expand its mobile network infrastructure operations and buying Nokia would be a good opportunity to gain a position on the U.S. market with a solid product portfolio. ? Putting all this together, we see more upside in the share from both an absolute perspective as well as a relative performance potential perspective versus Ericsson,? Mr. Sarkamies said.
Deutsche Bank?s Kai Korschelt said the Microsoft deal is a good outcome for shareholders, although he is concerned about an expected decline of NSN profits in the second part of this year and in 2014. Mr. Korschelt estimates that Nokia in the first quarter of next year will have net cash of around ?7.5 billion, which raises the prospect of a significant windfall for shareholders. If Nokia keeps ?5 billion for general purposes and potential acquisitions, ?excess net cash available for return to shareholders could be ?2.5 billion or a potential cash yield of 15%.? The bank has upgraded its rating to hold from sell.
After disposing the handset business, ?Nokia flips from loss making to profitability,? Jefferies analysts Lee Simpson and Robert Lamb said. Nokia will effectively become a profitable, telecom equipment pure-play, they say, and upgrade their rating to hold from underperform. ?The Microsoft deal also means that cash fears abate, and helps Nokia?s buyout of Siemens? stake in Nokia Siemens Networks. ?There is an additional ?1.5 billion of financing from [Microsoft] to be taken up at Nokia?s discretion,? Jefferies said.
However, Alexander Peterc and Alexandre Faure at Exane BNP Paribas expressed some caution. Although the new company appears clean, profitable and financially stable, the analysts said there is still a risk that the Microsoft deal is delayed or derailed by wary Microsoft shareholders. The bank upgraded its rating to neutral from underperform.
Finally, long-time Nokia bear Pierre Ferragu at Bernstein admitted that the Microsoft deal is ?the one event we thought could not happen.? ?He added that from Nokia?s perspective, the Microsoft deal seems ?very advantageously structured and offers a lot of upside? ?to Bernstein?s valuation framework.? Instead of being stuck with a devices business that would have burnt lots of cash in restructuring and barely returned to breakeven, Nokia has ?offloaded its problem child to Microsoft and is left with an interesting string of assets, including a highly profitable patent portfolio, an astonishing ?7.8 billion net cash on its balance sheet and a stabilizing wireless equipment maker. Bernstein upgraded Nokia to market-perform from underperform.
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