Nokia’s Handset Sales Slump May Cut Into $9 Billion Cash

Nokia Oyj (NOK1V) may tomorrow predict further declines in handset sales, potentially eating into cash reserves as the Finnish company struggles to compete against smartphones using Google Inc. (GOOG)’s Android software.

Nokia, the biggest maker of mobile phones by volume, may sell as few as 90 million handsets this quarter, driven by a slump in low-end feature phones, said Andy Perkins, a London- based analyst at Societe Generale. Second-quarter shipments probably declined 14 percent to 96 million phones, according to the average estimate of 29 analysts surveyed by Bloomberg.

Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer than 100 million phones in a quarter for the past four years. The shrinkage means Nokia may start to use part of its 6.4 billion euros ($9 billion) in net cash and liquid assets while the company seeks to revive its unprofitable Nokia Siemens Networks venture, said Tero Kuittinen, an analyst at Greenwich, Connecticut-based MKM Partners.

“The fear is that they’ll guide third-quarter shipments below 90 million which means they could start burning cash at a rapid clip,” Kuittinen said in a phone interview. “Nokia is geared to maintaining its manufacturing and distribution footprint at 100 million phones a quarter and it’s difficult to scale that down rapidly.”

Doug Dawson, a spokesman for Espoo, Finland-based Nokia, declined to comment before the company’s earnings release, scheduled for 1 p.m. local time tomorrow.

Nokia rose 3.2 percent to 4.02 euros at 5:30 p.m. in Helsinki. The stock has declined 48 percent this year.

‘Collapsing’

Global sales of mid-range and low-end feature phones are “collapsing,” while smartphones based on Android are healthy, Bert Nordberg, chief executive officer of Sony Ericsson Mobile Communications AB, said last week in an interview. Nokia chose Microsoft Corp. (MSFT)’s Windows Phone over Android because it offered the chance to help build a new market segment.

The handset maker, which consolidates Nokia Siemens in its results, may report a second-quarter net loss of 48 million euros, according to the average of 22 analyst estimates. The loss for the third quarter may reach 192 million euros, the average of 13 estimates.

A one-time payment from Apple Inc. (AAPL) over a settlement of all patent litigation will have a “positive” impact on the handset unit’s second-quarter operating margin, earlier forecast to be “around breakeven,” Nokia said on June 14.

‘No Floor’

Second-quarter revenue may have fallen 7.3 percent to 9.27 billion euros, while the average selling price dipped 5.7 percent to 57.5 euros, the estimates show.

“There is no floor in the sales guidance and that’s very alarming -- there is nothing we can lean on,” said Mats Nystroem, an analyst at SEB Enskilda in Stockholm who recommends selling Nokia shares. The erosion of Nokia’s cash would be an “alarming trend” for valuation and dividend payments, he said.

Chief Executive Officer Stephen Elop, said in February that Nokia is retiring its Symbian operating system in favor of Windows Phone. The move may have accelerated the flight of Symbian users to Android, which overtook Symbian in the first quarter as the most popular mobile-phone software. The first Nokia handsets with the Microsoft system are scheduled for the fourth quarter.

Job Cuts

The company’s reported market share for smartphones slipped to 26 percent in the first quarter from 41 percent in the second quarter of last year. Elop, who joined from Microsoft in September, has announced 5,800 job cuts, or about 10 percent of the handset-related workforce, and arranged more than 3,000 transfers as he scrapped products that he judged wouldn’t sell against Apple’s iPhone and Google handsets, and spun off non- core units.

Cupertino, California-based Apple said yesterday its third- quarter profit more than doubled to $7.31 billion, topping estimates, lifted by record sales of iPhones and iPad tablets.

Nokia last month announced the N9, a high-end handset that will be the last device in the Linux-based product line the company has developed alongside Symbian since 2005. The handset, designed by Marko Ahtisaari, the son of former Finnish President and Nobel Peace Prize laureate Martti Ahtisaari, would be a test of hardware and features that will appear in Windows Phones.

Nokia continues to introduce new Symbian devices, promising 10 more this year despite a rapid falloff in operator and public enthusiasm. Price cuts are already being reported on the E6 handset, introduced in May. Elop has a goal of selling 150 million more handsets on the last versions of Symbian.

“Any possible positive trigger or fundamental change driver relates to the Windows Phones, which are unlikely to ship in significant volumes before the first quarter if not the second,” Nystroem said.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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Photographer: Simon Dawson/Bloomberg

Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer than 100 million phones in a quarter for the past four years.

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Photographer: Simon Dawson/Bloomberg

Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer than 100 million phones in a quarter for the past four years. Close

Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer than 100 million phones in a quarter for... Read More

Photographer: Henrik Kettunen/Bloomberg

The Nokia Oyj N8 Symbian smartphone. Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer than 100 million phones in a quarter for the past four years Close

The Nokia Oyj N8 Symbian smartphone. Except for a recession-related dip in early 2009, Nokia hasn’t shipped fewer... Read More

Photographer: Henrik Kettunen/Bloomberg

Nokia Oyj chief executive officer Stephen Elop. Close

Nokia Oyj chief executive officer Stephen Elop.

Photographer: Munshi Ahmed/Bloomberg

The Nokia Oyj N9 smartphone. Close

The Nokia Oyj N9 smartphone.

Photographer: Henrik Kettunen/Bloomberg

A customer passes an advertisement for the latest Nokia E7 smartphone inside a Nokia Oyj mobile phone store in Helsinki, Finland. Close

A customer passes an advertisement for the latest Nokia E7 smartphone inside a Nokia Oyj mobile phone store in Helsinki, Finland.

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