No Way, No How, Nokia is Recovering

By Jonathan Yates - August 11, 2012 | Tickers: AMZN, AAPL, MSFT, NOK, SSNLF | 0 Comments

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While its stock price has risen in the short term, the selling off of assets is a far more telling action about the future survival of Nokia Corporation (NYSE: NOK).  Everyone knows that Nokia Corporation is imperiled so this naturally means that prices are lower and only the best assets will be purchased.  That is hardly a strategy for the a company seeking to rebound and recover like those going long in recent market action obviously expect for Nokia.

Nokia just sold Qt, a software technology business, to Digia Oyj, a high tech firm.  In another deal, Nokia Corporation sold 500 patents to Vrinngo Inc., a mobile software developer.  According to one report, "Under Digia's ownership, Qt will be incorporated with Android, iOS and Windows 8 platforms. The Helsinki-based acquirer already owns Qt’s commercial licensing business, which it purchased from Nokia in March 2011. The software Qt develops is currently used by more than 450,000 developers for making applications for many sectors, including automotive, healthcare and defense."

The patents that Nokia has sold are for cell phone infrastructure.  An article about the sale noted that, "...New York-based Vringo is paying $22 million in cash for the patents...Should the patents yield more than the purchase price in revenues, Nokia will collect an additional payment of 35 percent in proceeds."

These are moves that, once again, inspire little confidence in the ability of Nokia Corporation to recover.  No business is going to give Nokia Corporation top dollar and only the best assets will be bought, at this stage.   Nokia has announced plans to reduce its workforce by 10,000 employees and to continue selling off non-core assets.  These are moves enforced by the market, not management.  In addition, these hardly allow for Nokia Corporation to bargain for the best price.

While selling off assets and laying off workers are moves by Nokia Corporation that cast profound doubts on its ability to survive, actions by others are even more imposing.  Earlier this year, there was rumored interest in acquiring Nokia by Samsung, but that did not transpire.  Microsoft Corporation (NASDAQ: MSFT), Nokia's partner in the Windows Smartphone, has done little to help.  When Microsoft introduced the new Windows 8, it was revealed that it was incompatible with Nokia phones on the market.  Needless to say, that took the share price of Nokia Corporation lower.

That action by Microsoft is understandable, however.  Below is the list of the best selling mobile phones currently for Amazon (NASDAQ: AMZN): 

1) Samsung Galaxy SIII blue sprint
2) Samsung Galaxy SIII blue verizon
3) Samsung Brightside
4) Motorola Droid Razr
5) Samsung Galaxy SIII white verizon
6) Samsung Galaxy Nexus 4G verizon
7) LG Expression AT&T
8) HTC Evo 4G Sprint
9) Samsung Galaxy SIII Blue AT&T
10) Motorola Droid 4G Verizon

There is a reason the Lumia 900 is not listed in the top ten: it ranks number twenty. 

Nokia's share price is deceiving, too, particularly after the recent rise. At around $2.90, Nokia is at a penny stock level with a market capitalization of over $11 billion.  To retain that market cap with a 10 multiple, Nokia Corporation must generate more than a billion dollars annually in profits.  This has not happened: over the last four quarters, Nokia has lost $3.5 billion.  Also this year, Nokia was supplanted by Samsung as the top mobile phone seller in the world.

In addition, the Lumia 900 smartphone has been a disaster for Nokia, not the rebound product as hoped for and envisioned.  The Lumia 900 price was just cut in half for sales in the United States.  Overall,  Nokia's unit profits for mobile phones keep dropping while its competitors' are rising, particularly in the lucrative high end sector of massive margins.  As an example, Apple (NASDAQ: AAPL) now books $254 in operating profit on each unit sold while Nokia loses $6.88.  Moreover, while Nokia Corporation is dependent on mobile phones sales for survival, Apple has a robust revenue stream from its iPads, Macs and iTunes.

Investors buy for the future; and that is certainly not promising for Nokia.  On August 29, Samsung will introduce the new Galaxy Note.  In September or October, the iPhone 5 is widely reported to be coming out from Apple.  Amazon is rumored to be ready to bring out a Kindle smartphone.  Early next year, Research-in-Motion will be unveiling the Blackberry 10.

Not only is Nokia losing money with a negative profit margin of 12.77%, but it could run out of cash in 2013.  The debt-to-equity ratio of 0.58 is way too high for a company that is losing money, or making any, for that matter.  On a quarterly basis, sales growth is down by 18.68%.  Over the same period, earnings-per-share growth is lower by 283.06%.  The only indicator that is increasing sharply is the short float for Nokia Corporation, now the second largest on the New York Stock Exchange at 202,751,180 shares, a 22.4% jump from July 13 to July 31, the most recent reporting period.

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