Nokia is blasting through its cash stockpile at what analysts call an unsustainable rate, raising fears that the company may not be able to turn its finances around. In the last five years, the company has blown away half its 10 billion Euro reserve, leaving it with less than 5 billion in cash on hand. At its current rate, Nokia risks running out of money in two years.
But while Nokia's troubles are plentiful, they're not without a glimmer of hope.
The company's fortunes have soured thanks in part to its sagging smartphone business. Nokia's former executives clung too long to the belief that its Symbian platform could compete against Apple's iPhone and Google's Android. In February 2011, it announced plans to switch from Symbian to Microsoft's Windows Phone platform: That's when Symbian handset sales fell off a cliff.
Nokia's finances are facing a two-pronged attack. First, the transition from Symbian to Windows Phone requires a significant capital investment. It doesn't help that the company has reorganized itself repeatedly over the years and has had to clean house at the executive level. Second, the nosedive in Symbian smartphone sales has crushed Nokia's revenues, further constraining its cash position.
What's bothering investors is that Nokia has two bonds coming up that it might default on. Its bonds are already rated at junk status. The first amounts to 1.25 billion Euros of 5.5% maturing in 2014. That represents more than a quarter of Nokia's current cash reserves. The second bond, for 500 million Euros at 6.25%, doesn't mature until 2019. Some analysts polled by Reuters don't think Nokia will have the cash to pay either.
[ Verizon plans to push Windows Phone to help counter cost of selling Apple's iPhone. Read more at Verizon To Push Windows Phone. ]
This amounts to a lot of doom and gloom, but all is not yet lost.
Nokia fielded its first Windows Phone devices by the end of 2011 and has released another two WP7 handsets this year. The Lumia 900, which is available from AT&T in the U.S., has "exceeded expectations," according to AT&T Mobility Ralph de la Vega.
He's bullish on Microsoft's chances with Windows Phone, which should help Nokia in the long run. De la Vega specifically cited the forthcoming launch of Windows 8 as a key moment for Microsoft's mobile strategies. When the company is able to show a cohesive user interface that shares features among PCs, tablets, and smartphones, more people might "get it" and choose Windows Phone.
While Nokia isn't in any immediate risk, it needs its Lumia devices and Microsoft's Windows Phone platform to gain traction. If it can't turn around its device sales by the end of the year with Windows Phone and Lumia, its cash troubles won't be the only problem facing Nokia.
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