Nokia (NYSE: NOK) Tumbles On Weak Supplier Results; Div Cut Ahead?

Palm Beach, FL 1/24/12 (StreetBeat) -- Nokia (NYSE: NOK) shares are down sharply on weak results from a key chip supplier, with earnings for the handset maker due on Thursday. Meanwhile, Goldman Sachs analyst Tim Boddy speculates that the company could slash its rich dividend to conserve cash as it shifts its high-end smartphones over to Windows Phone software and away from its own Symbian platform.

Bloomberg notes this morning that yesterday’s weak Q1 guidance from chip supplier STMicroelectronics – which as I posted yesterday sees a 4%-10% sequential drop in revenues in the quarter – is pressuring Nokia shares. The company blamed its woes in large part due to weak results at ST-Ericsson, which has supplied an assortment of components to Nokia.

ST-Ericsson in its own fourth quarter report warned that results would be “challenging in coming quarters, due to reduction in the short term of new products sales with one of our largest customers,” which the company did not specifically name.

Goldman’s Boddy asserts in a research note that Q4 results are likely to be soft. He sees sales of 9.6 billion Euros and EPS of 2 Euro cents a share, below the consensus at 10.1 billion and 4 cents. He thinks the company sold only 1 million of its Windows-based Luimia smartphones in the quarter, while Symbian phone shipments continue to decline.

Boddy adds that the outlook for 2012 is likely to be cautious. He sees Q1 device revenues of 4.8 billion Euros, 10% below the consensus at 5.3 billion. Boddy expects break-even EPS for 2012, below the Street consensus at a profit of 20 Euro cents a share.

Meanwhile, as noted, Boddy thinks the company is going to sharply cut its dividend, to the 10-20 Euro cents a share range, from 40 cents. While noting that the company has plenty of cash – about 5 billion Euros – he contends that “Nokia’s outlook remains uncertain and its cash pile is a hedge against a more painful transition to Microsoft products than expected, and provides strategic optionality.”

Note that NOK’s ADRs have a rather fat current yield of 8.6%, which alone suggests that the Street does not see the current payout as sustainable.

Boddy adds that he expects recent outperformance of the stock based on long-term hopes for Microsoft-based phones to reverse, as first half 2012 guidance and Lumia’s slow ramp “reminds investors that Nokia remains in a challenging transition period.”

NOK is down 40 cents, or 7%, to $5.33.

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