Will the sun shine brightly in Espoo, Finland, again? Ordinary, folks at the headquarters of Nokia Corp. (NYSE: NOK) 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 catchingfire 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.
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.
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.
@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.
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.
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?
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.
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.
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?).
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.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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