Investors losing faith that Nokia can stop the rot

HELSINKI Thu Apr 12, 2012 11:07am EDT

A rusted chain and a lock are seen at a closed gate of the Nokia mobile phone plant in Bochum May 16, 2008. REUTERS/Wolfgang Rattay

A rusted chain and a lock are seen at a closed gate of the Nokia mobile phone plant in Bochum May 16, 2008.

Credit: Reuters/Wolfgang Rattay

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HELSINKI (Reuters) - Ailing cellphone maker Nokia has the cash to survive seven quarters like the last, but investors are losing faith that it can break the vicious circle that keeps customers and in turn application developers from its new phones.

Chief Executive Stephen Elop, who joined from Microsoft in 2010, gambled last year that ditching Nokia's homegrown Symbian phone software in favor of a largely untried version from his old employer would put the company back in the driving seat.

On Wednesday it warned that it would make losses in the first two quarters of this year, after demand for the moribund Symbian phones collapsed, while sales of its new Windows Phone models are a long way short of compensating.

The market took fright when Elop made the decision, and tumbled again on the loss warnings. Any investors still holding the stock after a year-long white-knuckle ride have lost two-thirds of their investment. On Thursday, the stock was down about 7 percent after a 15 percent fall a day earlier.

Despite getting the new Windows Phone models out at breakneck speed, it has sold fewer than expected, as consumers remain wedded to Apple's iPhones or Samsung models running Google's Android system, both of which come with a bigger range of applications supported by a much larger population of developers.

"It is too early to write Nokia off," said analyst Peter Cunningham at Canalys. "It is still in the middle of its transition to Windows Phone, but it doesn't have the luxury of time. The next six months will be critical in the company's long-term future. The Lumia 610 needs to be a success, and it needs some hit products in the market in time for Christmas."

VOLUMES

In the first quarter Nokia sold just over 2 million Lumia phones, compared with expected sales of 31 million iPhones and the 37 million smartphones Samsung is expected to sell in the quarter, according to a Reuters poll.

The market consensus is that it needs to sell 27 million this year, 55 million next year, and 94 million in 2014, according to analysts polled by Reuters.

"If they can show the volume, then the next Nokia tune is 'Stairway to Heaven'. If not, it is 'How Low Can You Go', or 'Bye Bye Baby'," said John Strand, founder of Danish research firm Strand Consult.

To make the volumes, the company needs to resolve a Catch-22 dilemma; to sell more phones, you need more apps, but to attract app developers, you need to sell more phones.

There are about 80,000 applications that owners of models running Windows Phone can enjoy, a drop in the ocean compared with the half a billion available to Apple and Android users.

Nokia burned through 700 million euros of cash in the first quarter, leaving 4.9 billion euros ($6.4 billion) at the end of March, but as its share price tumbles, it might run out of time before it runs out of cash.

Its market value, about a tenth of its recent peak in 2007, the year the iPhone stormed the market, is just 11.3 billion euros, making it increasingly attractive as a takeover target, though industry followers said predators would likely move only after some evidence that the Windows Phone strategy was working.

A Reuters poll showed Nokia likely lost its position as the world's largest cellphone maker in the first quarter to rival Samsung Electronics, after dominating the market for 14 years.

"At the moment it seems that the strategic decisions were not correct," said Timo Rothovius, Chairman of the Finnish Shareholders Union, which represents small-cap local investors who have increased their holdings during the freefall.

"It might be that the Windows phones still take off, but at the moment it is hard to see any light at the end of the tunnel. Something radical has to be done. The company's credibility in the market is weak, and it suggests that maybe betting everything on one card wasn't a good thing," Rothovius said.

(Additional reporting by Eero Vassinen and Terhi Kinnunen in Helsinki and Georgina Prodhan in London; Editing by Will Waterman)

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Comments (16)
canpie wrote:
My 1st phone was a NOKIA which caused grief. Nokia had a Toronto service centre run by arrogant reps bordering on cruelty. The female manager would even hang up during the conversation. Writing complaint to GLOBAL headquarters (SCANDAVIA) was treated with equal arrogance. After paying an outrageous service bill to NOKIA CANADA I decided it best to throw the phone away and get a replacement. The new Sony Ericson phone was great and it still works great. NOKIA arrogance is the reason for its demise. RIM also bears the same MO as NOKIA in arrogance and malfunctioning phone. Good riddance to both.

Apr 12, 2012 11:30am EDT  --  Report as abuse
Agion1 wrote:
“a drop in the ocean compared with the half a BILLION available to Apple and Android users.”

When errors like this make it through, it makes it impossible to put any stock (no pun intended) in your writing or conclusions. Sloppy.

Apple: Over 500,000 apps

http://www.apple.com/iphone/built-in-apps/app-store.html

Android: Under 500,000 apps

http://www.appbrain.com/stats/number-of-android-apps

I assume you meant “half a million.” This still does not excuse proper copy-editing.

Apr 12, 2012 12:44pm EDT  --  Report as abuse
Texrat wrote:
“There are about 80,000 applications that owners of models running Windows Phone can enjoy, a drop in the ocean compared with the half a billion available to Apple and Android users.”

Getting customers to understand that the delta between 80,000 and half a billion is essentially pointless here is the REAL challenge.

Availability and variety are great, but at some point the app numbers become abstract and even counterproductive.

Apr 12, 2012 1:45pm EDT  --  Report as abuse
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