updated 07:37 am EDT, Fri May 18, 2012
Nokia facing serious financial troubles
Nokia is said to be facing critical cash flow issues as it struggles to stem its growing losses in cellphone market share. Just five years ago, the Finnish handset maker had a cash stockpile of over $11 billion, which has now eroded to the point where the company only has $2.7 billion on hand which is shrinking by the day. Compounding matters, the costs of its debts are also rising, while its Lumia Windows 7 smartphones are yet to gain significant market traction making a quick turnaround unlikely.
According to some estimates, Nokia could run out of cash entirely by the end of next year, if its current trends continue. Further, it has a 1.25 billion Euro debt due to mature in 2014 and another large debt due in 2019. The company’s cash flow reserves are in such as state, that it is possible that it could default on one or both of these loans.
‘Nokia is implementing a decisive action plan to position our company for future growth and success,’ said Nokia spokesman James Etheridge. ‘The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position.’
Nokia’s cash flow problems, however, show no immediate signs of a turnaround. Its Q1 results were particularly bad for the company, losing $775 million. Although its Windows Phone Lumia handsets have shown some signs of promise, they have in no way made up for its plunging number of smartphone sales following its decision to drop its aging Symbian OS. Its shares were also recently downgraded to junk status by ratings agencies, with the real possibility that they could be downgraded again.
Despite its financial woes, Nokia remains the number two overall handset vendor only recently overtaken by Samsung after a 14 year reign at the top. However, most of its sales have come from low-end 'feature phones' that have low profit margins. Its lack of smartphone sales momentum is the critical issue that the company is attempting to resolve. In addition to switching to Windows Phone, Nokia is also aiming to tackle the emerging economies, where Apple's iPhone and Google Android powered handsets have yet to get a hold. Whether it will be able to turn its fortunes around quickly enough remains to be seen. [via Reuters]