3 Things That Matter As Nokia Innovates Again

Ever since Nokia (NOK) exceeded market expectations by reporting 4.4 million Lumia sales in the fourth quarter, shares stayed above the $4-level, closing recently at $4.43. The sales increase is much-improved over the 2.9 million sold in Q3. The budget Asha line was also strong: 9.3 million units were shipped. Financial results for the quarter remain weak, but Nokia is introducing innovation to Lumia. What innovation means for Nokia will matter most for Lumia demand in the long-run.

1)     Quarterly Financial Guidance Still Weak

Financial results will still be negative, hurt by seasonality and nearly flat margins. Nokia estimates that operating margins (non-IFRS) will be between break-even and positive 2%. This is an improvement over the previous negative 6% forecast.

Nokia Siemens Network (“NSN”) Profitable

Nokia said that NSN will have sales of EUR 4.0 billion in the fourth quarter. Margins (non-IFRS) will be 13-15%, up from the 8% (plus or minus 4%) guidance provided previously.

2)     Innovation with 3D Printing

To further differentiate itself from other smartphone makers, Nokia is now offering 3D printing technology to offer customized removable shells for Nokia devices. The shells will even add wireless charging capabilities for the mid-range 820 model. Previously, only the Lumia 920 supported this. 

3D templates and case specifications are downloadable ( 12 and  3).

Nokia clearly understands the importance of 3D printing. 3D Systems (DDD) and Stratasys (SSYS) are trading at 52-week highs as investors catch on to the significance of the technology in manufacturing.  [Related:  $799 3D Printers: 5 Companies To Watch]

3-Month Stock performance of 3D Systems, Stratasys, and Nokia:

Chart Source: Yahoo Finance

For Nokia, the company will now have the capability to offer greater customization and modularity to its phones. Templates could be sold as an add-on, improving profit margins. 3 rd party entrepreneurs could sell designs that would extend the capabilities of the shell. Smartphone covers would only be shell protectors for an Apple (AAPL) iPhone or Android device, but for Nokia, they could do much more. Nokia suggests functionalities like a solar charger, a glow-in-the-dark, or a waterproof case as some of the ways of using 3D technology.

3)     3D Printing

Stratasys and 3D Systems are in a league of their own. The deal between Nokia and 3D Systems is only one of many that investors should expect in the weeks and months ahead. The companies are also much smaller than that of Nokia: Nokia is nearly 4 times bigger than 3D Systems as measured by market capitalization:

NAME

AVG VOL (Jan 24/13)

MKT CAP

Nokia Corporation

58,844,700

15.81B

3D Systems Corp.

2,098,960

3.97B

Stratasys Ltd.

647,242

1.86B

 

3D Systems is scheduled to report earnings on February 18 2013. The company has just 714 employees compared to over 100,000 at Nokia. Stratasys has 530 employees. Analysts are also very bullish on the 3D printer makers. JP Morgan assigned a $86.50 target price with Stratasys with a Neutral rating. Canaccord thinks 3D Systems could trade to $75.

The awareness of 3D printing in the consumer and small business will improve over time. Staples (SPLS) announced plans to launch 3D printing services late-last year in November 2012. The company will use Mcor to supply 3D printing services.

Nokia’s bold move to embrace 3D printing gives the smartphone maker an edginess, but this is not without risk. The Verge reviewed the Lumia 820 reference cases, and said that they could crack. The cases are too tight to the phone body, and printing buttons on the case could lead to cracking.

Conclusion

Nokia does not have a measurable P/E as it continues to transition its business. Its book value is $3.07 per share, and the company is currently valued at 1.4x book. Shares also pay a dividend of $0.1768, a 3.99% yield for investors.

Slowly but surely, Nokia is differentiating itself from Android and Apple. The Lumia already offers a unique Windows Phone interface. Combined with a sold maps service, solid build quality, and now customization through 3D technology, Nokia is well on its way in growing its market share.

 

Written by KAPITALL'S Chris Lau

 

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