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Nokia Sales Slump Puts Pressure on Elop to Consider Split
Less than two months ago, Nokia Oyj (NOK1V) Chief Executive Officer Stephen Elop stood up at the mobile- phone industry’s annual jamboree to declare that the company had turned the corner as sales of its new smartphone blossomed. The prediction proved premature. Yesterday, the Finnish company reported a surprise operating loss at its handset unit for the first three months and forecast no improvement this quarter. While sales of the Lumia model it developed withMicrosoft Corp. (MSFT) topped estimates, competition ate into margins and sales of lower-priced devices plunged in emerging markets
As Nokia’s cash pile dwindles and a junk credit rating looms, Elop will have to consider more radical steps such as selling its low-end phone business, whose revenue slumped by a third last quarter, said Adnaan Ahmad, an analyst at Berenberg Bank in London. Nokia makes about 70 percent of its handset sales outside Europe and North America, where competition from Chinese companies including ZTE Corp. (000063) is intensifying.
“Why not try to sell its mobile-phone business and hence just remain a smart devices company?” said Ahmad, who has been covering the telecommunications industry for more than a decade and is ranked fourth based on the total return of his Nokia rating over the past year according to Bloomberg data. He advises selling the shares with a price estimate of 3.20 euros.
The stock fell 15 percent to 3.27 euros yesterday, the steepest drop since May 2011 and cutting the company’s value to 12.2 billion euros ($16 billion). Espoo, Finland-based Nokia has lost almost 70 billion euros of market capitalization since Apple Inc. (AAPL) started shipping the iPhone in 2007.
Running Out of Time
“We have absolutely changed the clockspeed of Nokia. The pace at which we are accomplishing this, you’re going to see this continue,” Elop said on Feb. 28 at the Mobile World Congress in Barcelona, comments he reiterated yesterday. “The next waves of devices, the next software, all of that will continue at an accelerating pace.”To make that happen, the manufacturer may also need to cut more jobs, said Edward Snyder, an analyst at Charter Equity Research in San Francisco. Nokia employed about 130,000 people at the end of 2011.
“That looks like a boilerplate statement to prepare employees and the government for big layoffs,” said Snyder. “The smartphone business is sucking the most wind, but they can’t get rid of that, it’s their future.”
Nokia doesn’t have much time left and needs radical measures to win back market share and investors’ trust, Simpson at Jefferies said. Nokia would benefit from moving its headquarters out of Finland to a lower-cost country, he said.
“There’s something very stale that suggests their relevance in the medium term will be gone unless something really serious happens,” Simpson said.
To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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