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Will the sun shine brightly in Espoo, Finland, again? Ordinary, folks at the headquarters of {complink 3847|Nokia Corp.} must be wondering why the news about their once brightly-shining corporate neighbor seems to be all doom and gloom these days, following reports yesterday that Moody's Investor Service downgraded a portion of the company's bond to near-junk bond status. The ratings agency further slapped “a negative outlook” rating on the wireless handset-maker.
The Moody's downgrade was anticlimactic in the sense that it had been expected, but it still knocked the stuffing out of Nokia's market value. The company's stock price fell during intra-day trading today to $4.07, down 58 percent from the 52-week high of $9.42. Nokia's market value at the current capitalization of approximately $15 billion has dropped so much over the last several years that a major rival (did someone say “Apple”?) could offer to buy the company at a large premium and still be able to write the check from available cash and short-term securities.
I've said in a previous blog that Nokia should opt for a permanent relationship via acquisition with Microsoft, even before the company decided to adopt Windows operating system and drop its own Symbian OS. (See: Why Microsoft Should Buy Nokia.) I don't support the decision to ditch Symbian, but a tie-up with Microsoft could really set up Nokia as a major third competitor in the handset market by giving it the financial stability to compete against Apple iOS and Google Android. Nokia, in my opinion, is an even more affordable acquisition target for Microsoft and other players, although the list of potential buyers is skimpy, and even fewer CEOs and boards of directors have the mojo to take on such a large deal — not with Apple rampaging through the market, anyway.
But I digress, so let's get back to the Moody's downgrade. The ratings firm highlighted the challenges facing the company and why Nokia is right now at a critical junction in its history. First, Nokia is becoming more reliant on the smartphone segment for a chunk of its revenue at a point when the newly-introduced Lumia device is still slowly ramping. The transition from Symbian operating system, which Nokia dumped last year, to Microsoft Windows OS has taken a toll on the company: Sales of Symbian devices are falling, while handsets based on Windows OS are not exactly catching fire in the market.
Here are the main comments from Moody's on Nokia's financial status:
- While volatility by quarters is not uncommon, Moody's believes that the structural challenges facing Nokia's Mobile Phones segment may not be easy to address, such as the market share gains recorded by makers of very low-end phones or new phone promotions by Chinese carriers.
In addition to the pressure on its own operations, Nokia may have to contribute additional capital or funding to Nokia Siemens Networks (NSN), its communications equipment partnership with Siemens (rated A1/ positive), if the company's restructuring cost starts to exceed cash flow from operations.
Nokia isn't keeping quiet. The company fought back in a statement in which it noted Moody's downgrade was only half the story. The ratings firm also observed “Nokia's strong liquidity position and capital structure,” adding that “cash conservation remains a priority for Nokia in the current transition.”
I agree, but just to be clear: Nokia isn't a basket case. The company has a ton of cash (9.8 billion euro as at the end of March), and its debt is moderate. But its cashflow could come under pressure in coming months if sales don't start picking up. Plus, the Moody's rating downgrade will jack up the company's borrowing cost. This company can use some good news right now. It's just not in anybody's forecast.
Nokis needs to take tough decisions to trim itself and become very agile to introduce new products. It may take them few years but it is possible to come back.
Many bad news for the Nokia recently but still I think we have to wait until the dust goes down. Nokia should close its ears (Moodys statement) and focus to its work.
On another board, Susan put up a post with a link to http://www.helsinkitimes.fi/news/index.php/finland/finland-news/from-the-finnish-press/1827-huge-survey-yields-promising-results-for-nokia in which Nokia ranks pretty well when compared to its rivals.
A professional analysis service I'm subscribed to recommended earlier today to sell NOK (although with low confidence). According to their report, they performed about 50% better than simply buy and hold on Nokia, so I trust them on this one.
All in all, this is another negative sign.
The nokia case seams rather complicated some worth.. i went through the
article sent by Ariella, and its quite interesting.
I think Nokia just needs to keep its head above water, and this bumpy ride will soon be over for them
I think think Nokia will be going out of business anytime soon.
@ Hm,
I agree with you on that, i feel that is what Nokia is still trying to do, though I feel Nokia is becoming desperate too.
If Nokia will not be distracted, a come back is still very much possible.
The bumpy ride may be over soon indeed. Nokia has a wealth of patents assets, although with unclear valuation.
However, see my other reply here. I usually stay away when there are such negative signs…
Nokia just need to invest and re-invent to take the market.If they do, they still have a good record though an history now but then could be used as a spirngboard.
“I don't support the decision to ditch Symbian, but a tie-up with Microsoft could really set up Nokia as a major third competitor in the handset market by giving it the financial stability to compete against Apple iOS and Google Android”
Bolaji, you are right. Symbian is Nokia's own OS and by sacking it they had done a big mistake. In my opinion, they have to continue production with Symbian. At the same time to compete in market, they have to come up with products for both Windows and Android version. Initially Nokia was also a member of Android development consortium and contributed for the OS development. But later, they sacked android for unknown reasons.
Hm, I think they are too late for that. They had lost the market share in both basic and Smartphone section. In my opinion the other possibilities are diversify their productivity to Tablets and other communication equipments.
Thanks Bolaji for keep updating about Nokia. I liked the paragraph about the possible takeover by either Apple or Microsoft or other player with deep pocket. While the takeover by Apple can be beneficial due to the patent base of Nokia but Microsoft can be better suiter for Nokia keeping in mind the current collaboration.
Rich, Interesting, Nokia began as a paper product company. Perhaps it can again transform itself because the mobile handset market is slipping away from Nokia.
Johnny, Short-sellers pile in when a company is in distress. Nokia is in this category and you can expect many investors to continue doing this until the company reverses its challenges.
Bolaji Ojo, I totally agree about piling of short traders.
However I am basing my decision mainly on an analyst firm I've been trusting for a while. Although they issued it with “low confidence”, they (statstrade.com) still issued a sell recommendation for poor NOK.
Every man for himself. 🙂 I'm not buying NOK, sorry…
Johnny, I don't disagree with statstrade.com's recommendation by the way. You don't need a crystal ball to know Nokia is struggling and would continue in this way for quite a while. A “sell” recommendation is based on the outlook for the next 12 months. I don't know anyone who thinks Nokia's sales will bounce back so strongly it will beat Apple in the next 12 months. Hence the “sell” recommendation. That's why I said Nokia needs some good news. Where's that news going to come from though? Acquisition.
@ Ariella, thanks for the link. Just quickly read the link survey. Well I think that's encouraging for Nokia. However, contrary to the link survey report, Moody's report indicates the rapid state of affair.. If the company's stock has gone down by “58% from the 52-week high of $9.42”. I think Nokia should quickly consider other options. Having said that, it's too soon to determine the market level for its Lumia 900 here in the Uk. We just have to wait and see.
@Adeniji: This is integral part of all organizations. It came to Sony, RIM Nokia and it will come to Apple too. Organization sohlud learn from their experience and avoid unproductive people who does only absract work.
@Jacon: If new Chinese mobile maker has hope to climb market share, why not Nokia try to get loast market?
I think the biggest trend in many of different product segments is the connectvity part. Now all the devices want to connect and talk to other devices prefereably through wireless nerworks. So I believe there will much more products in the future embedded with technologies like Zigbee and low power blue tooth.
you are right, that is because no manufacturer want to be left behind.They all want to be relevant in the future and to the future.
I wonder!. I agree with you on that. I feel Nokia still have a good leverage.
Nokia is definitely suffering to make any name in the smart phone era. Their Lumia not able to generate huge sales as nokia expected to be and this is killing their confidence of future. I'm still looking forward to tablets from nokia with windows8 os.
@elctrnx_lyf:
I agree, Nokia is struggling to make a worthwhile impact in the smartphone market. With its focus on windows mobile platform it is losing the market very quickly to the android based phones.
Keeping this in mind I am not sure if the windows 8 tablets will prove to be a promising investment.
I agree, R&D is an important factor and regular surveys need to be conducted to get insight on the technologies that will have an impact in the future. Based on the survey results enterprises can divide the R&D budgets to different research projects.
elctrnx_lyf, It probably will get a bit more difficult for Nokia before it starts to get better. This is the pattern when a market leader loses steam. Two reports today point to a way forward for Nokia. In the first report the company indicated it will have to make more cost cutting (See: Nokia posts $1.2 billion loss as sales plummet) and the second could hold some promising good news for the company. The report speculates about Verizon supporting Windows operating system for wireless handsets. Verizon's support could significantly give Nokia the lift it needs to raise its profile in North America. (See: Will Verizon throw its weight behind Windows Phone?).
We shall see all happen at very faster pace – there all here now. Unique thing is that, we are getting used to it.
@Johnny:
The question is whether the struggling Nokia is ready (want) to be sold or not. And if so what big company would be willing to buy it? Do you see any one in your crystall ball? I would say Microsoft might be interested, but there have been much disappointment in their alliance so-far.
@ Wale, You are right but do we really have a choice, and there is no going back too-to what?we are both leading each others both elcetronics and consumers.
Samsung may not see that as a bad idea at all.
I think that most people don't realize how much of these “futuristic” products are already out there. These items are introduced one at a time and slowly integrated into society, so most people just take it for granted.
Nokia's best option is to partner with Microsoft while they still have substantial cash. Work with Microsoft to not only implement Windows OS, but to innovate the OS. Come up with some things that will truly compete with Apple and Android. This could be very beneficial to both companies.
I read today that Nokia is ready to discount the Lumia because response to the product has been mixed. It seems to me it is way too early to do that. So much of Nokia's problems seem to be self-inflicted–I wonder if this is another one?
For Nokia to be relevant in today's smartphone technology, with Microsoft they need to create more than the basic features, they need strong innovation.
There are two types of R&Ds, one for enhancing the existing system and the other for new products. In both cases extensive study and investments are required. But now a day’s most of the companies are showing more interest in adding an ‘x’ factor to the existing popular devices. This will help them to reduce investments and a better mileage in return.
As cool as these devices sound, there is a downside to engineering for the sake of engineering. Companies used to have the luxury of inventing becuase it was challenging and fun. We'd all like to see those days again, but I think utility and ROI will continue to be driving forces behind the development of electronics.
I agree with you on that, which means that concerning electronics,the future is always here even though it might unfold bit by bit.
@Anne, i certainly agree with you on that, the rate at which changes are taking place everyday is so alarming that Nokia will have to see a bit into the future to really come back relevant.
@ Anne,
I quite agree with you, what the users need is not just a phone but device to solve lots of their computing, media and communicating. Nokia need to the same.
Barbara,
The Nokia Lumia 800 has appeared on the top 10 list of best-selling phones in Finland in March 2012 as 2nd on the list only after the iPhone 4S, which leads as numeber one. The Nokia Lumia 710 is 9th on the list.
-Susan