Bankers expect Nokia to sell 20 million Lumias this year, go bankrupt next year

3 min. read

Published on May 18, 2012

published on May 18, 2012

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Reuters polled 30 bankers and analysts and found great concern for the health of the company, with some even saying Nokia may not be able to repay their debts in 2 years.

"In our opinion, the company’s ability to repay even its shorter-term 2014 bond could be an issue," said Societe General credit analyst Juliano Torii.

Analysts on average expect the company will burn through almost 2 billion euros more in just three quarters, while the most bearish see the company wiping out its 4.9 billion euros net cash buffer completely next year.

The company, which had more than 10 billion euros in cash on hand in 2007, and has spent over $2.7 billion over the past five quarters, has two bond issues outstanding, 1.25 billion euros of 5.5 percent bonds maturing in 2014 and 500 million of 6.75 percent notes due in 2019.

"I would not rule out the possibility of Nokia being downgraded further," Utterback said. "The company is in a negative spiral that will be hard to reverse."

Societe Generale analysts this week downgraded Nokia stock to a to "sell" and warned that the company’s operating losses and restructuring costs could accelerate a decline in sales.

"Such an additional fall could be enough to burn through most of Nokia’s existing cash pile and even bring into question Nokia’s very survival," SocGen analyst Andy Perkins said in a note.

A Nokia spokesman said improving cash flow was an important goal.

"Nokia is implementing a decisive action plan to position our company for future growth and success," spokesman James Etheridge said. "The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position."

All is not doom and gloom however.

Analysts on average expect Nokia to sell 46 million of the phones next year, compared with 20 million expected this year.

If Nokia fails to improve its fortunes, some bankers say Microsoft could become a white knight.

Microsoft is already paying Nokia $1 billion a year to use its software on Lumia smartphones. And some investment bankers familiar with the technology sector said the support could extend well beyond that amount, if Nokia’s problems intensify. Instead of Nokia borrowing money from the now expensive open market Microsoft could easily guarantee them cheap loans during the transition.

Nokia is however facing extreme risk in transitioning from a business model of selling several hundred million phones to tens of millions of Windows Phones, and with the collapse of their Symbian business there is little doubt of the peril it is in.