Nokia Q3 earnings preview: Cash levels, Windows Phone 8

Nokia Q3 earnings preview: Cash levels, Windows Phone 8

Summary: In spite of Nokia's new smartphones and Microsoft's invested partnership, the Finnish phone maker is expected to report further losses on Thursday for its third quarter earnings report, amid layoffs and further restructuring efforts.

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TOPICS: Nokia, Tech Industry
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Nokia announces its third quarter earnings on Thursday, and all eyes are on the Lumia smartphone business as the paddles keeping the phone maker in rhythm.

Screen Shot 2012-10-17 at 15.28.07

The Finnish mobile maker is still hanging in there thanks to its continued relationship with Microsoft on Lumia smartphones, but the firm is facing another rough ride in its upcoming earnings report from its last quarter earnings. 

For Nokia's third quarter earnings out early tomorrow morning, analysts are expecting Nokia to report a third quarter net loss of €396 million ($519), or €10 ($13) per share on a revenue of €6.96 billion ($9.12bn). 

There are two major points to look out for:

  • Nokia's cash position and how much the firm is burning in its reserves as it tries to remain afloat;
  • Microsoft's partnership on Windows Phone 8-powered Lumia smartphones.

Nokia has already laid off close 10,000 employees this year alone to cut back on the firm's operating expenditure as it attempts to claw back its cash balance. The restructuring efforts have already cost the company €450 million ($590m) in charges in the past quarter alone. Nokia estimates it can reduce its devices and services operating expenses down to €3 billion ($3.93) by the end of 2013.

Read more: Nokia: Cash and clock could run out on comeback | Nokia Q2: By the numbers | Nokia Q2 darker than expected: Heavy losses, poor sales | Nokia's Q2: all lemons, little lemonade | Related: Microsoft confirms Windows Phone 8 launch on October 29 | Microsoft to make its own Windows Phone: On the rumor that keeps resurfacing | Nokia vice-president leaves firm; questions remain over why | Nokia looking to sell off headquarters, and lease them back | Nokia builds maps momentum, lands Oracle deal

Nokia will continue to reserve its vast cash pile. Nokia's net cash position for the second quarter stands at €4.2 billion ($5.17bn) --- down from €4.8 billion ($5.9bn) in the first quarter. However, analysts suggest the firm could spend another €400--500 million ($525--650m) in net cash burn for the third quarter.

Evercore analysts Mark McKechnie and Preeti C. Doshi estimate that Nokia is facing a net cash balance of €2.2 billion ($2.8bn) the end of 2013 at this current rate, about half of what the firm is at now. 

But for now, the Microsoft--Nokia deal is keeping the Finnish phone maker in play -- at least until a point where Microsoft inevitably bails to go it alone.

As Nokia transitions to the new Windows Phone 8 platform later this year with a bevy of new handsets supporting the next-generation mobile software, much of the focus is if Nokia can recover from its quarter on quarter losses and pick up momentum in the run up to the lucrative Christmas sales period.

Wedbush analyst Scott Sutherland said in a note: 

We believe Lumia phones and the evolution of these phones and the Windows Phone OS will define Nokia’s success. We expect Nokia to make a major U.S. push with its Windows Phone 8 devices, and believe that this push will be a central force to Nokia's potential turnaround. Lumia phone unit sales have been doubling the past two quarters to 4 million in Q2. We expect further growth in Q3 and solid growth in Q4 with the launch of the Windows Phone 8 Lumia phones.

Nokia is expected to sell in the region of 71.9 million mobile devices, down 20 percent year-on-year, and 9.7 million smartphones, down more than 40 percent year-on-year. The figures represent a 1 million loss in Lumia sales on the previous quarter thanks to Nokia killing the upgrade path from existing Lumia devices and Windows Phone 8.

Similarly-beleaguered HTC is already taking a shine to Microsoft's eye with its range of Windows Phone 8 devices. No word from Microsoft on whether the software giant will develop a handset it can call its own, but it seems as though while it has invested interest in Nokia, it will leave its own handset 'plan B' in its back pocket for when it needs it.

Topics: Nokia, Tech Industry

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9 comments
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  • Well, of course it's a bad quarter

    WP8 hasn't hit yet. Lumia 900 was discounted to $49 in the U.S. Transition to Windows Phone is still in full swing. Even if things will turn around in the future, and Nokia rises from the ashes of a burning platform, this quarter would require a major miracle to be anything but disappointing.
    WebSiteManager
  • The future is bright...

    Nokia may have a bad Q3, but the nokia trouble may be finally over by this Christmas. Lumia 920 is going to be a super hit for Nokia.
    owlllnet
  • This isn't information.

    They haven't released any new devices from all of the R&D they've been investing in.

    Do people who report on financials for technology understand how (the) business works?

    Or, giving that benefit of the doubt, do those reporting understand the English language?

    Either way, tech blogs are getting more painful to read than those of political topic.
    knowah
    • "the Microsoft--Nokia deal is keeping the Finnish phone maker in play"

      The line is a gem. The shift in direction appears to most telecoms analysts as the start of the collapse of the company, certainly from a reveune perspective.

      Why look at its US market potential, when it was always a small part of their business. Global revenues tanking.
      Richard Flude
  • Microsoft Is Box-Office Poison

    And the difference between HTC (which also does Android phones) and Nokia (which doesn't) is that HTC is making a profit.
    ldo17
    • You're making a terrible comparison.

      HTC is tanking at the minute due to its shrinking profit outlook.

      They are in serious danger of joining Nokia. Their outlook is poor, their profits are meager and their potential to create new WOW factor has shrunk.

      Samsung is on their A game. Now that they are the other companies are hurting.
      Master_T[RG]
      • Re: HTC is tanking at the minute...

        Really? Check their last quarterly report: they had a 6% net profit margin. Admittedly that was down from 8% the quarter before, but still better than the 2% that Windows vendors like Acer and Lenovo are getting. And of course a darn sight better than losing money, as Nokia and RIM are doing.
        ldo17
  • Nokia will be a B school case study

    In how an inept CEO can destroy a company.
    rpasea
  • nokia, htc and bb need to merge!

    Either together or with a cash rich company outside the industry that can help fund them. The players in this market are too big, with too much cash to drive the market. They dont have the gravitas to do it on their own anymore.
    casualsuede