(By Balaseshan) Oppenheimer & Co. analyst Ittai Kidron upgraded his rating on shares of Nokia Corp.
) to "Perform" from "Underperform", saying the cost cuts buy more time to turn around its business without bleeding cash in the process.
As expected, Nokia announced sizable layoffs and lowered its 2Q-2012 outlook. Nokia announced plans to cut 10,000 employees globally by the end of 2013.
The cuts aim to reduce Nokia's Devices & Services annual operating expense run rate to 3 billion euros. This is a revision to the previous target of 4.35 billion euros. Kidron believes the cuts can help Nokia protect its cash balance.
Management revised its 2Q financial targets as competitive headwinds rise and the macro environment weighs. Operating margins in Devices & Services are now expected to be worse than negative 3.0%. The analyst now models negative margins of 4.5% and doesn't see a return to profitability in this segment until 2Q-2013.
Nokia announced a round of management changes at key levels (although not in Smartphones). With the changes nothing but an internal switcheroo, Kidron fails to see how they bring what is needed—new out-of-the-box DNA with no bias or old-Nokia loyalties.
The analyst still has doubts the changes would transform Nokia into a fastmoving differentiated OEM. And with competitive headwinds getting stronger, macro getting weaker, and Nokia's workforce distracted, he still sees near-term risk in the shares.
With that said, Kidron is now approaching a binary event, the launch of Windows 8 devices, and related noise could set a bottom on the stock.
Nokia is in a tough spot. But at this point Kidron believes this is priced in. What is still unknown is how Windows 8 changes Nokia's outlook. Since the answer is not known until 4Q-2012, he feels shorting further here is risky.
NOK is trading up 5.53% at $2.48 on Friday.