Last week Nokia was downgraded…again. This means Nokia’s long-term corporate credit rating and its short-term corporate credit rating were both downgraded. This is the 2nd downgrade this week. (Fitch Ratings did the same thing)
The S&P had this to say about Nokia current state:
“We now expect Nokia to report significantly lower margins and cash flows in 2012 than we had previously expected…The outlook is negative, reflecting the possibility of a further downgrade if Nokia fails to stabilize revenues and margins and significantly cut its cash losses.”
This second downgrade caused Nokia to respond. Here is their official statement by Timo Ihamuotila, Nokia’s Executive Vice President and CFO.
“As we have detailed in recent announcements, Nokia is in the middle of a transformation program which encompasses every aspect of our business. We are 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, while bringing attractive new products to market.”
This statement from all outword appearances is true. Nokia has trimmed a lot of fat and streamlined the processes. When Nokia outsourced Symbian, and went with Windows Phone all in one move it not only instantly modernized it’s main OS but it also cut HUGE amounts of money from the R&D budget.
Nokia is now getting giant quarterly payments from Microsoft called “platform support payments” (the first payment was $250 million I don’t know if the rest are that big but that is a BILLION a year if it is) plus it is shifting the a large burden of advertising dollar wise to the Microsoft.
If you look at Nokia’s net worth as of March 31, 2012, Nokia had gross cash balances of EUR 9.8 billion, and a net cash position of EUR 4.9 billion. This company does not sound like a “junk bond” to me.
That being said, right now in the midst of transition Nokia is losing money at an alarming rate. They lost $1.2 billion in the first quarter alone. Some would lay this blame this squarely a the feet of Nokia President Stephen Elop. Mr Elop announced that essentially Symbian was dead while Nokia had no Windows Phone coming to sell to the consumer for almost a year after that announcement.
While may have not been the brightest business move short term in the long term it may pay off. At the time of the Windows Phone announcement there was anger and seething rage not only in Finland but anywhere Nokia fans were found. The shift from the much loved open source Symbian to a “wall garden” OS like Windows Phone did not sit well at the all with Nokia faithful. Now imagine if one day without warning Nokia just pulled the rug out from under Symbian and replaced it with Windows Phone. This would have stirred up a hornets nest three times the size of what we saw.
With the transition being handled in the way it was this gave Symbian fans time to either move on to another like OS, calm down and look into Windows Phone, or buy a Symbian Phone and make plans to baby the hell out of it.
However this announcement did mean that there would be short term suffering the likes that Nokia has not seen since they stopped being a rubber company and started being mobile electronic company. Which leads to the important questions.
Can Windows Phone make it? I believe Windows Phone will make it, there is some momentum now behind it like we have never seen before. Windows Phones are selling out in stores and online, the customer reviews are overwhelming positive, and people are finally looking past the Windows Phone 6.5 and the Microsoft Kin disasters.
Is the worst behind Nokia? I believe Nokia is not out of the woods yet by any means. This ENTIRE YEAR will be rough for Nokia but there will be a slow but steady recovery based mainly on what they call “the next billion”. This means selling low end phones and lots of them as the their smartphone division slowly makes up lost ground.
The Lumia 900 was Nokia’s first beachhead into the important US market and it did exactly what Nokia intended it to do…Not become the next iPhone but to start the conversion and get Nokia back into the smartphone game. That’s exactly what the Lumia 900 did and this phone will create a market for other Nokia smartphones to succeed.
Of course that is all just my opinion, and opinions vary from person to person and that that is why Nokia is showing as a junk bond now when it really isn’t. Don’t believe me that Nokia can come back? Does anyone else remember when Microsoft changed the fortunes of a once struggling company called Apple?
Picture credit: The Hot Iron
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