Nokia: Cash and clock could run out on comeback

Nokia: Cash and clock could run out on comeback

Summary: Nokia is getting squeezed on the high- and low-ends of the smartphone market. Cash and time is running short.

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TOPICS: Nokia
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Nokia issued yet another profit warning and restructuring amid promises that it will lure customers with one-of-a-kind mobile experiences. The big question is whether Nokia has the time and cash to rebound.

The company's latest restructuring effort rhymes with the last handful executed by Nokia. Nokia said it will:

CEO Stephen Elop said that Nokia will double down on the Lumia line and focus on location based services. To that end, Nokia said it will acquire Scalado, which provides imaging technology. Add it up and Nokia is going map happy.

See also: From mobile powerhouse to Windows Phone maker; Nokia cuts 10,000 jobs in radical shake-upNokia in numbers: From job cuts to its iPhone rivalryPhotos: Nokia phones through the ages [ZDNet UK]

The numbers, however, indicate that Nokia's moves may not amount to much. Simply put, it's time to start worrying about Nokia's cash on the books. Nokia thinks it can get devices and services operating expenses down to EUR 3 billion by the end of 2013.

To get to that expense run rate, Nokia will take another EUR 1 billion charge. By the end of the first quarter, Nokia will have spent EUR 450 million in cash on restructuring. Cash outlflows from the second quarter on will be about EUR 650 million in 2012. In 2013, restructuring cash outflows will be EUR 600 million.

This isn't enough to save Nokia.

In other words, Nokia's math doesn't add up over time if there's no growth. Lumia may be a smartphone hit, but Nokia is also getting crushed on feature phones and mid-tier devices. In other words, Nokia has no easy fixes ahead. The most likely competitive outcome is that the Lumia lags Android and Apple's iPhone and Nokia is thumped from below by rivals such as ZTE, Huawei, Samsung and others.

Morgan Stanley analyst Francois Meunier said in a research note that Nokia's cash charges are worse than expected. It's fairly easy to forecast a scenario where Nokia's cash burn will become an issue with the supply chain. Suppliers may demand better terms from Nokia given its weakening balance sheet.

Meunier said:

Nokia had net cash of €4.9bn end of Q1 (gross €8.7bn).We adjust for €740m in dividend payment confirmed in May, and cash restructuring in 2012 of €650m for D&S and €800m for Nokia Siemens Networks (NSN). So even before organic cash burn (which today’s announcement suggests will be worse), this would leave €2.7bn of net cash by Dec-12, with a further €600m of D&S cash restructuring in 2013, and an unknown liability on NSN.

Meanwhile, it's likely that Nokia's devices and services unit will lose money well into 2013.

In other words, the clock and cash could run out on Nokia if it doesn't step up and deliver growth soon.

Jefferies analyst Lee Simpson said:

The now commonplace Nokia pre-warning has again surfaced and the lack of success with smartphones is the culprit. With so many moving parts (Symbian extinction, Lumia disappointment, 2H12 global mobile phone category doubts, NSN disposal?), 2012 and 2013 are shaping up to be very difficult years for the company.

Topic: Nokia

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128 comments
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  • Hmmmm

    I wonder why Mr.Microsoft/Nokia isn't reporting this? Oh wait he is working on spinning this into a positive thing.... Larry, you're doing the right thing, reporting based on facts.
    Jumpin Jack Flash
    • Just like you'r working to spin it

      but the difference is, nobody's buying "your version" of things.

      Sorry.
      William Farrel
      • Business case for years to come

        The rights and wrongs of this will come out in Business Case studies for years to come. Once the hype is over the demise of BB and Nokia will be disected and analysed ad infinitum.
        The descision to go Microsoft and the "Ratner" speeches stopped people buying the old platform for Nokia and the lack of touchscreen and security blunders for BB.
        Poor shortsighed management and leadership doing too little too late.
        DesertJim
      • In the years to come there will be a new expression.

        It will be something like "Doing an Elop".
        Meaning being acting as a trojan horse.

        Hint: Elop owns over 260 000 shares in Microsoft.

        Elop joined Microsoft in January, 2008 and is a member of the company's senior leadership team that sets overall strategy and direction for Microsoft. This is just [b] Before [/b] he joined Nokia.
        hkommedal
  • Plans or Plants?

    "???Close plans, consolidate functions and ditch non-core businesses such as Vertu;"

    Do you mean "Close plants...?"

    Just curious. I was thinking Nokia might be a good stock buy at like $2.something a share, but really, no.
    dvanderwerken
    • months?

      "Meanwhile, it???s likely that Nokia???s devices and services unit will lose month well into 2013."

      Money?
      gtvr
      • This is my major complaint with ZDNet and TechRepublic

        There is no editorial review. They let these bloggers out of their hole with no concept of spelling and grammar. How do they expect us to respect the information contained in their blog if they don't respect their audience by using proper spelling and grammar? Who knows, maybe the editors are worse than the bloggers.

        I've commented on this lack of proper spelling and grammar before as have many other readers. The response is typically the blogger generates so much output that there are bound to be errors. Don't these people have any pride in their work? They, the bloggers, don't take us, the readers, seriously enough to produce properly spelled and grammatically correct blogs. Why should we value whatever information and/or opinion they are attempting to convey?
        mark.cooper@...
  • Propaganda

    The so called analysts can spin the news in which ever way they want...
    The nokia Lumia series has a very good start and with Win 8, it's going to really take off.
    owllnet
    • ahhh

      Ahhh I see

      First they said wait for WP7, then wait for Nokia Handsets, then wait for Mango, then Tango, now its wait for Win 8............I see

      Damn Shame they didn't do the right thing and go android.

      Ahh well more market share for Sammy I guess.
      DejaVu2
      • .

        yet the lumia 900 outsold most devices in the usa did it not?
        danjames2012
      • Android? How's that working out for Motorola or HTC?

        Oh, not too well. Android would have been the knife to the throat for Nokia, as they don't make cheap, and they're the only handsets moving to any large degree.
        William Farrel
      • danajames2012?

        "yet the lumia 900 outsold most devices in the usa did it not?"

        The week it came out?....if that.
        JeveSobs
      • @danjames2012

        It outsold most phones in the US for a month. Sales dropped rapidly after that.
        msalzberg
      • Re; Ahh well more market share for Sammy I guess.

        Yes.
        [b] They [/b] do not have an Elop to ruin their business.
        hkommedal
    • Imagining whirled peas

      [ul][i]The so called analysts can spin the news in which ever way they want...[/i][/ul]Analysts, schmanalysts. The company announced they are laying off 10,000 people. And here you come singing, "The Sun Will Come Out Too-MAH-row!"

      You have no room to talk about anybody else spinning the news.
      Robert Hahn
    • Lol

      good luck with that.
      JeveSobs
    • Re; Propaganda

      I have some more "Propaganda" for you.
      Since Elops "burning platform" speech in January last year, the shares in Nokia has gone from ???8.40 down to below ???2.-
      Now they are announcing that 10 000 more jobs has to go.
      To me that seems a lot more like sad news than anything good.
      hkommedal
  • oh rly ?

    @danjames2012

    "yet the lumia 900 outsold most devices in the usa did it not?"

    great news !!!

    can you provide a source for the hard figures or is it just something you made up ?
    DejaVu2
  • In other words, Nokia's math does not add up over time

    Why are you working here, if stocks and business are your strong suit?
    William Farrel
    • About stocks and business.

      Nokia are cutting away another 10 000 jobs.
      Nokia has gone from Euro 8.40 in January last year (before Elops stupid speech) til present day level of Euro 2.00 and below (latest is 1.83).

      It does really not require special knowledge to figure out that Nokia is surrounded by sad news.

      Here is a link for you about present day Nokia valuation : http://www.nasdaqomxnordic.com/shares/shareinformation?Instrument=HEX24311

      The latest downturn was after the latest announcements about cutting more jobs.
      hkommedal