Nokia and Cisco former tech bell weathers hit turbulent times

Two former technology bell weathers, Cisco of the U.S. (CSCO) and Nokia of Finland (NYSE: NOK), have had a bad week, the former because of disappointing earnings and the latter because of its announcement of a mobile phone alliance with Microsoft (MSFT).

Canadian, Stephen Elop and ex-Microsoft executive, became the new CEO of Nokia Corporation in September 2010 September 21, 2010, taking over from Finn, Olli-Pekka Kallasvuo.

On 11 Febuary 2011, Nokia entered a strategic alliance with Microsoft, and announced it would replace its phone operating systems Symbian and Meego with Windows 7 for its smart phone devices. Bing, Microsoft's search engine will the search engine for all Nokia products. Nokia's shares fell 14% ($1.5) on Friday, to $9.36 on the NYSE, having declined two-thirds in the last 3 years.

The rationale for the deal appears to make sense given Nokia's weakening position in high end mobile or smart phones partly driven by the inadequate Symbian operating system. However many have questioned whether two under performing companies in the mobile market can come together to make a success of it. Analysts have questioned why Nokia has made this deal to pay royalties to Microsoft to use Windows 7 Phone when they could have incorporated Android for free from Google. Its seems unlikely that Nokia/Microsoft can really take on the might of the Android and Apple products and hence the sharp drop in the share price. In addition to these changes, changes to executive management and a general restructuring were announced which underscores how this once dominant company has fallen on hard times.

The transition to the new system will occur in 2013 and Credit Suisse thinks Nokia’s smartphone market share could fall from almost 30 per cent to 15-odd per cent during the next year alone, which would reduce earnings from €0.50 per share in 2010 to more like €0.40 in 2011, or a forward price/earnings of 18. With the lack of visibility and poor outlook, the shares could fall even further.

Networking and IT infrastructure company and a Dow component, Cisco Systems , fell from over $22 to finish the week at $18.70, a fall of 15% following its latest earnings report.

Margins were hit again this quarter and the forward guidance was uninspiring. The company losing market share in two significant product categories, switching, with sales down for three consecutive quarters and routers sales declining 8.9% quarter-over-quarter.

The forward price/earnings is around 10 which isn't expensive and though this monster of a company has a $104 billion market capitalisation, it has $30 billion of cash. Many are saying that Cisco's best days are behind it and it has become too big following its large acquisitions over the last few years.

Clearly the CEO's of Nokia and Cisco are going to have some sleepless nights and the competition isn't going to get any easier. Adapt, or die!

Portfolio review of the week - 12th February 2011

The FTSE 100 finished up 43 points at 6,063, a rise of 1% for the week on news that Egyptian president Hosni Mubarak had stepped down. The Dow Jones Industrial Average rose 44 points, or 0.4%, to 12,273, a rise of 1.5% on the week. It was the Dow's highest close since June 2008. WTI Oil futures dropped a dollar yesterday to $85, on the news from Egypt.

The Contrarian Investor UK Portfolio had a mixed week, with gains from Xcite Energy (XEL) tempered by a large fall in Rockhopper (RKH), though XEL represents a much larger part of the portfolio. The unexpectedly large drop in RKH, meant that my margin requirements were looking a little stretched and therefore I reluctantly had to close a couple of Xcite spread bets late on Friday, albeit at a profit, and my portfolio still has a lot of Xcite with news just around the corner.

Xcite Energy(XEL) -  Xcite finished down 3p on Friday, but a gain of 25p on Wednesday meant that it finished the week at £3.82, a rise of 20p on the week. The rig signing deadline with British American Offshore for the Rowan Norway rig passed yesterday (this was the second extension) with no news. Given the company normally issue an RNS the day after a signing deadline, it is pretty much certain an RNS will be forthcoming on Monday. Wednesday's rise was partly related to a FT.com story that there was "vague talk of a takeover" (see previous post http://contrarianinvestoruk.blogspot.com/2011/02/xcite-energy-ftcom-quotes-vague-bid.html). As I stated earlier it was frustrating to have to close some spread bets on Friday, but there is still plenty there to benefit from upside from a good RNS. The key document, the CPR reserves report is expected anytime in the next month, and you never know, it might be sooner than we were all led to believe.

Rockhopper (RKH) - Unfortunately buys on Thursday and Friday were poorly timed with a subsequent 17% fall on Friday afternoon, but my previous post (http://contrarianinvestoruk.blogspot.com/2011/02/rockhopper-1410-3-disappoints-market.html) illustrates why I wasn't panicked into selling like many others on the drop.

ARM Holdings (ARM) - A short on chip designer, ARM holdings, was closed for a profit after the shares hit all time highs this week.

Bowleven (BLVN) - An update from the Sapele 1 well in Cameroon didn't do much to help the shares this week. They finished down 2.5% at £3.29. Several failures in the AIM oil sector this week (Rockhopper, Nautical, Encore) plus perhaps the changes at CMC holdings seems to have contributed to a lot of volatility. Bowleven remains a core holding for medium term gains particularly with a second rig being mobilised in February to accelerate appraisals.

Weatherly International (WTI) - The RNS from 8th February was good news. "mining activities have resumed at both the Otjihase and Matchless mines with ore being blasted and stockpiled awaiting commissioning of the concentrator. The commissioning of the concentrator is progressing well and the plant will resume normal operation in accordance with the programme. Weatherly expects to have sufficient quantities of concentrate to commence transport to Walvis Bay in March with the first revenues to be realised from concentrate sales shortly thereafter." This remains a very promising share with Copper prices at all time highs and production ramping up.

Sirius (SXX) and Angel (ANGM) - Nothing to report. Where is that gold shipment report Elias Jones?(Chief Exec. Angel) - what's all this talk you've been on holiday!!??