What Does Windows Phone 8 Mean for Nokia? (Part 2)
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We return to the tale of woe that is Nokia (NYSE: NOK). First, a brief recap of Part 1: Microsoft (NASDAQ: MSFT) announced that the Windows 7 phones, such as the newly released Nokia Lumia 900, will not receive a Windows 8 upgrade. There were also rumors, since shot down by Microsoft, that MSFT was planning to make its own Windows Phone devices. The simple truth is that this flub would be survivable if Nokia was in a cushy financial position at the moment. But Nokia is only slightly cushier than Research in Motion, which is currently circling the drain.
The Year in Review
This has not been a banner year for Nokia. It’s hard to decide which lowlights to include, as they continue to grow in number. There was the first quarter report of a 52% smartphone revenue drop, year-over-year. The sales reduction caused Nokia’s market share to drop from 25% to 19.8%, with Samsung now the market victor. There’s the fact that all three major ratings agencies have downgraded its credit to junk.
Nokia is trying to slow its skid. The company plans to cut 10,000 jobs through the end of 2013 and the chief marketing officer, executive VP of mobile phones, and executive VP of markets will all step down. It was announced earlier this month that Nokia was attempting to sell Vertu, its division of luxury phones retailing over $6,000 per device on average, perhaps to equity firm EQT Partners AB. Vertu is thought to be valued around $250 million.
There’s still a glimmer of hope left that Nokia might make a turnaround. Nokia will be among the launch partners for the WP8 devices coming in the fall. And the company does plan to stick to its Windows Phone 7 devices. The barely improved WP7 OS will likely run lower end devices that the company hopes to offer for consumers looking for a bargain.
There is also potential money to be found in the company’s intellectual property, or patents, which brought in $650 million in revenue last year. There are 30,000 patents and 10,000 “patented innovations.” Selling patents would depend on finding a willing buyer and getting a decent price. It can’t pull a Kodak and sell too little, too late. Nokia would need to strike a deal on par with the 2010 Norvell-Microsoft deal, where MSFT purchased 882 Norvell patents for $450 million.
The Coming Months
Nokia reports its second quarter on July 19 and the WP8 devices may start shipping as early as December. If the second quarter report shows growth, and that growth is sustained through the rest of the year, Nokia might have a chance. If the growth doesn’t happen, the company is likely to run into a serious cash issue rather quickly.
Nokia had 4.9 billion euros ($6.1 billion) in cash at the end of Q1. In the preceding five quarters, the company lost 2.1 billion euros ($2.7 billion) in cash. Analysts polled by Reuters estimated that the company will lose an additional 2 billion euros in the next three quarters, though a few bears predicted a total wipeout of cash.
LynBetz has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend Microsoft and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.