For Nokia, tick-tock goes the comeback clock
The handset maker is getting squeezed on the high and low ends of the smartphone market. Cash and time are both running short.
by Larry Dignan
The Lumia 900 isn’t enough to save Nokia.
Nokia has 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 it 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:
- Invest in developing new smartphones and feature phones;
- Cut costs;
- Lay off another 10,000 workers by the end of 2013;
- Return its devices and services unit to an operating profit “as soon as possible”;
- Close plans, consolidate functions and ditch non-core businesses such as Vertu;
- And revamp its management team to improve marketing and operations.
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.
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.
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.
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.
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