Print 32 comment(s) - last by Mitch101.. on May 21 at 4:13 PM

Pressure is on to offer big results from Windows Phone

Even as Finnish phonemaker Nokia Oyj. (OMX:NOK1V) is having its first taste of sales success in the U.S. with the new Windows Phone 7.5 Lumia 900 on AT&T, Inc.'s (T) network, the company finds itself running out of rope financially.

I. Dwindling Cash

Nokia has €4.9B ($6.23B USD) in direct cash reserves.  But in the last five quarters, it bled out €2.1B  ($2.67B USD).  A Reuters poll of analysts indicates that on average the expectation is for these losses to accelerate to €2B USD ($2.54B USD) in the next three quarters, while a few extremely bearish analysts believe Nokia could lose its full €4.9B stockpile in one year.

Running out of cash -- particularly when two of the top three credit agencies have rated its credit at "junk" status -- could be a death sentence, necessitating a sale or merger.

And to make matters worse, Nokia has a €1.25B ($1.59B USD) bond obligation maturing in two years (2014).  Many believe that there's substantial risk of a default.

Nokia is burning through cash at an alarming rate. [Image Source: The Hibernia Times]

Company spokesman James Etheridge insists that Nokia is on the verge of a turnaround, stating, "Nokia is implementing a decisive action plan to position our company for future growth and success.  The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position."

II. Company Took 1 Yr. & 2 Mo. to Launch Its Flagship Windows Phone

Some fear Nokia's promising Lumia lineup of Windows Phones may be too little, too late.  Indeed, after announcing a parternship with Microsoft in February 2011, it took the firm nine months -- until November -- to begin to release product.  Nokia didn't bring a product to the U.S. until January -- eleven months -- and did not bring a flagship model (the Lumia 800 or 900) to the U.S. until April's launch of the Lumia 900 on AT&T.  

It took Nokia a year and two months to launch its flagship Lumia 900. [Image Source: Nokia]

In other words, Nokia took a year and two months to release a competitive handset in the U.S. and despite its excessively relaxed schedule still managed to suffer some of the same kind of hiccups typically associated with companies with tighter release cycles (such as Apple, Inc. (AAPL)).

Given the stark details of Nokia's baffling sluggishness, it's unsurprising that the company now finds itself hanging over a financial precipice on a fraying lifeline of cash.  With more promising handsets, analysts expect Nokia's smartphone sales to rise from 20 million units this year to 46 million next year.

That increase leads some to believe that Nokia has a shot at recovery -- even if it is far from a sure shot.  States one anonymous banker to Reuters, "There are chances for Nokia to shape up and recover, but it's going to be tough.  The TMT market is fast moving, and even one slip-up can cost a company its whole future."

While some analysts predict Nokia to run out of money, some of those doubters still believe that ally Microsoft Corp. (MSFT) will act as a "white knight" investor, buying either a stake -- or even all of -- Nokia to save its partner from bankruptcy.  At this point, though, only two things are sure -- pessimism is at an all time high regarding Nokia, and the smartphone maker is running out of fiscal rope.

Source: Reuters

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Sad times
By chmilz on 5/18/2012 7:16:11 PM , Rating: 3
It blows my mind when selling 20 million units of your product is considered a failure.

RE: Sad times
By sprockkets on 5/18/2012 7:23:25 PM , Rating: 2
It is when you lose 2.5 billion or so euros in 3 months. Obviously they sell a lot of low end stuff and bled a lot with meego and the previous stuff.

RE: Sad times
By mondo1234 on 5/18/2012 7:29:18 PM , Rating: 5
Jason didn't mention the class action lawsuit filed on behalf of its investors either.

RE: Sad times
By bug77 on 5/19/2012 2:08:35 PM , Rating: 2
In AT&T's case, they're giving their flagship away for free. Sure, AT&T must still pay Nokia something, but Nokia can't be making a lot of (if any) profit for these phones.
Nokia used to be THE phone to have in Europe (some preferred Ericsson, but I think Nokia had most of the market share). Now nobody cares about them anymore.

RE: Sad times
By vol7ron on 5/20/2012 4:04:03 PM , Rating: 2
Nokia definitely had a large market share globally. I believe in Europe it was Nokia, Ericsson, and LG.

Sadly, I don't think much came out of the LG-Ericsson joint venture when it came to mobile arena.

RE: Sad times
By Avatar28 on 5/21/2012 12:32:00 PM , Rating: 2
The Lumia 900 costs $217 to produce. It sells for $450. Nokia is making around $233 per unit. Maybe slightly less, I'm not sure if the vendors make any profit on the hardware or just the services that get bundled with it.

Not surprising...
By abscode on 5/18/2012 7:01:54 PM , Rating: 5
Not surprising since they make such mean and violent little bastards when exposed to the Allspark.

RE: Not surprising...
By RjBass on 5/21/2012 11:48:34 AM , Rating: 2
Give this post a 6.

Analyst and Credit rating agencies
By anandtech02148 on 5/18/2012 9:42:49 PM , Rating: 3
In AMERICA,analyst & credit rating agencies are TROLLS.along with the trolls that cause $2billion lost at JPmorgan, everything you read in this free press society are diaper diarrhea that happens every second. Nokia a company of 100yr traditions is out of cash, what about their hundred of money earning patents? this is diarrhea for the internet.

By InvertMe on 5/21/2012 9:35:19 AM , Rating: 2
I completely agree. The chance of Nokia going bankrupt is almost nil. It won't happen. American analysts just go for sensationalist type stories.

Nokia knew they couldn't do business as usual. That's why they are restructuring and changed to Windows Phone. There is much more profit potential in WP than their Symbian or Meego OSes. Nokia knows this. They are not stupid.

Granted only time will tell but I think Nokia will be just fine and if growth of WP continues like it is, it will be a solid #3 in no time.

By melgross on 5/21/2012 11:20:11 AM , Rating: 2
Your post is pretty trashy. Their patents don't matter much. Most are old and are due to end within a few years. They don't get much for them either, because the relevant ones are FRAND where they can't demand much. They were already in trouble for trying that with Apple in Europe and the States. That's been settled.

They screwed themselves, and this is the result. If they can't raise their margins, and make some decent profits, they will have a negative cash flow. If that continues, they will have a high run rate on their cash and investments. Their networking division is in trouble too. They tried to sell that last year, but got no takers.

And don't forget that there rating agencies in the EU as well. They aren't any happier with Nokia than their US counterparts.

But Steve Baldmer still have a lot of cash
By nofumble62 on 5/18/2012 9:02:15 PM , Rating: 2
If Nokia sinks, it will be like an omen for Microsoft. Got to bail it out in any case.

By StevoLincolnite on 5/19/2012 2:18:24 PM , Rating: 4
Or Purchase Nokia, Nokia would then be at it's cheapest in years to buy out. :)

By phatboye on 5/18/2012 6:24:29 PM , Rating: 2
obvious troll is so damn obvious

By Pirks on 5/19/2012 1:50:18 AM , Rating: 2
Windows 8 Phone might launch next month not the end of the year

By Mitch101 on 5/19/2012 10:28:41 AM , Rating: 2
Windows Phone 8 next month with Nokia Apollo hardware by the end of 2012?

By Totally on 5/19/2012 11:38:03 AM , Rating: 2
Filed under: News, Rumors

By Mitch101 on 5/19/2012 5:28:39 PM , Rating: 2
Looks like the Beta and SDK's are coming in June.

By Mitch101 on 5/20/2012 3:55:51 PM , Rating: 2
Lumia overtakes Droid as Google Search term

Samsung Focus 2 just launched today also.

By jnemesh on 5/21/2012 11:42:24 AM , Rating: 2
I wonder how many Google results show that the Lumia is a half baked POS with a Fisher Price UI?

By Mitch101 on 5/21/2012 4:13:16 PM , Rating: 2
Really? Considering I know 2 Dow 100 companies issuing them as corporate devices instead of blackberry and the feedback is extremely positive. I also know a third that loves them too.

By Pirks on 5/18/2012 6:54:09 PM , Rating: 2
Right. I agree with you. Oligopoly is defintely better for consumer than Apple/Google duopoly.

By drycrust3 on 5/18/2012 7:23:23 PM , Rating: 2
So MS is working on it

As someone else commented some time back, if (or when) some company, e.g. Apple, sees something in the software on a Nokia - Windows phone that infringes upon a patent they own, that company has to negotiate with Microsoft, they don't negotiate with Nokia.
Compare this to Android, where each manufacturer, even though they are a member of the Open Handset Alliance, has to deal with the patent infringements themselves.

By mondo1234 on 5/18/2012 7:58:13 PM , Rating: 2
I think the difference is that MS charges for each copy of the OS while Google does not. MS makes more money from Android licenses than from Windows Phone.

By TakinYourPoints on 5/19/2012 8:31:39 AM , Rating: 2
This is correct. Microsoft makes more money from Android than Google, Google makes far more money serving ads on the iPhone/iPad than they do on their own Android, and nobody really makes money from WP7.

What a strange world.

By InvertMe on 5/21/2012 9:30:17 AM , Rating: 2
Devs make good money on Windows Phone. There is a really good story posted by a few news sites, a dev created an app for WP and was really disappointed with his profits so he spent tons of money and converted the app to Android. I believe his total cash in to port to Android was around 60,000.

So the app is released with much fanfare and what happens? He makes like 12,000 total from Android. Far less than he made on Windows Phone.

Disclaimer - my numbers are probably way off but the point of the story is the same.

Windows Phone users like to spend money on apps. They also have a very high ad click rate.

This is probably one of the reason WP app growth rate is the highest of all platforms.

By nafhan on 5/21/2012 9:48:17 AM , Rating: 2
You understand this story doesn't mean a whole lot since it's just one example, right?
1. You don't say what the app is so... hard to say for sure, but:
2. There's a good chance existing apps already covered the functionality he was providing on Android thus making his app more redundant than it would be on WP7.
3. I would imagine that Windows Phone users like to get apps. Period. Android's got more free apps. So, potentially, less sales.
4. I'd say it's more likely that WP app growth is due to both a less crowded market and the fact that the phones are just now starting to sell better. As the market fills up, things will almost certainly slow down.

By someguy123 on 5/19/2012 6:39:09 PM , Rating: 2
Companies don't go to google because google (or really the open licensing) basically gives manufacturer's like samsung free rein on the open aspects of android. Samsung infringing does not necessarily mean that android OS infringes globally. This is also sort of a loophole that gives them a chance to immediately block "offending" products rather than allowing manufacturers to keep delivering handsets with Google simply issuing an update after litigation.

"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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