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5/18/2012
10:17 AM
Eric Zeman
Eric Zeman
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Nokia Burning Cash, But AT&T Has Hope

Nokia's investors have long had reason to worry, and new analysis points to trouble ahead. Can Windows Phone turn things around?

Nokia is blasting through its cash stockpile at what analysts call an unsustainable rate, raising fears that the company may not be able to turn its finances around. In the last five years, the company has blown away half its 10 billion Euro reserve, leaving it with less than 5 billion in cash on hand. At its current rate, Nokia risks running out of money in two years.

But while Nokia's troubles are plentiful, they're not without a glimmer of hope.

The company's fortunes have soured thanks in part to its sagging smartphone business. Nokia's former executives clung too long to the belief that its Symbian platform could compete against Apple's iPhone and Google's Android. In February 2011, it announced plans to switch from Symbian to Microsoft's Windows Phone platform: That's when Symbian handset sales fell off a cliff.

Nokia's finances are facing a two-pronged attack. First, the transition from Symbian to Windows Phone requires a significant capital investment. It doesn't help that the company has reorganized itself repeatedly over the years and has had to clean house at the executive level. Second, the nosedive in Symbian smartphone sales has crushed Nokia's revenues, further constraining its cash position.

What's bothering investors is that Nokia has two bonds coming up that it might default on. Its bonds are already rated at junk status. The first amounts to 1.25 billion Euros of 5.5% maturing in 2014. That represents more than a quarter of Nokia's current cash reserves. The second bond, for 500 million Euros at 6.25%, doesn't mature until 2019. Some analysts polled by Reuters don't think Nokia will have the cash to pay either.

[ Verizon plans to push Windows Phone to help counter cost of selling Apple's iPhone. Read more at Verizon To Push Windows Phone. ]

This amounts to a lot of doom and gloom, but all is not yet lost.

Nokia fielded its first Windows Phone devices by the end of 2011 and has released another two WP7 handsets this year. The Lumia 900, which is available from AT&T in the U.S., has "exceeded expectations," according to AT&T Mobility Ralph de la Vega.

He's bullish on Microsoft's chances with Windows Phone, which should help Nokia in the long run. De la Vega specifically cited the forthcoming launch of Windows 8 as a key moment for Microsoft's mobile strategies. When the company is able to show a cohesive user interface that shares features among PCs, tablets, and smartphones, more people might "get it" and choose Windows Phone.

While Nokia isn't in any immediate risk, it needs its Lumia devices and Microsoft's Windows Phone platform to gain traction. If it can't turn around its device sales by the end of the year with Windows Phone and Lumia, its cash troubles won't be the only problem facing Nokia.

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melgross
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melgross,
User Rank: Ninja
5/21/2012 | 3:33:59 PM
re: Nokia Burning Cash, But AT&T Has Hope
I think he is incompetent. It takes a different kind of person to run a company than to run a division. Often when someone moves from the second to the first, it's not good. We don't always see that because the company is doing ok to begin with, and it might take years before problems become obvious.

But when a company has serious problems, we see that incompetence right away.
melgross
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melgross,
User Rank: Ninja
5/21/2012 | 3:30:26 PM
re: Nokia Burning Cash, But AT&T Has Hope
Exceeded expectations. Now realistically, what does that mean? How many did they expect to sell? 2 million? 1 million? 500 thousand? 50 thousand? Without knowing, their enthusiasm means nothing. We expect that. They must not project gloom, because that will kill any sales. They have to give the impression that the product is popular so that others will want to buy it.
ricegf
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ricegf,
User Rank: Guru
5/19/2012 | 10:38:00 AM
re: Nokia Burning Cash, But AT&T Has Hope
It's called "the Osborne Effect", and it's well-understood and perfectly predictable. Either he's an idiot or he's busy slashing Nokia's corporate value in preparation for his (former) employer's acquisition of Nokia's real value (patents) at fire-sale prices.

I personally don't think he's an idiot.
RobMark
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RobMark,
User Rank: Apprentice
5/18/2012 | 6:41:39 PM
re: Nokia Burning Cash, But AT&T Has Hope
I think they have until about the middle of next year before they have problems. By then they should have full lines of Lumia phones throughout the world.
rbanffy
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rbanffy,
User Rank: Apprentice
5/18/2012 | 5:50:39 PM
re: Nokia Burning Cash, But AT&T Has Hope
Elop's dismantling Nokia. There were two outcomes possible from his decisions: one would validate WP7 as a competitor to Android, the other would allow Microsoft to acquire Nokia's IP. Since it's a win-win scenario for his former employer, it's clear who Elop serves.

He can always claim incompetence, but he's been managing Nokia against the interests of its investors from day 1.
rpasea
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rpasea,
User Rank: Apprentice
5/18/2012 | 4:20:07 PM
re: Nokia Burning Cash, But AT&T Has Hope
I don't understand why Elop would kill Symbian and their revenue stream w/o having WP in place and ready to launch.
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