Nokia’s future hangs in the balance

Although Finnish mobile phone manufacturer Nokia just released a new line of mobile phones, analysts are concerned about Nokia financials and the rate at which they are using their reserve funds.

Analysts have said that the phone maker is using its reserve cash at an alarming rate, which could lead to them struggling to pay off the smallest of debts in the near future.

“In our opinion, the company’s ability to repay even its shorter-term 2014 bond could be an issue,” said Societe General credit analyst Juliano Torii.

Nokia had €10 billion in cash on hand in 2007 and has a €1.25 billion bond issue outstanding, of 5.5% bonds will mature in 2014, while having a €500 million bond issue maturing in 2019.

According to Reuters, “the bonds – both junk-rated by Fitch and Standard & Poor’s – are trading at record wides versus mid-swaps (a money market benchmark), at around 400 basis points and 683 basis points respectively. And those levels may still not be wide enough, some say.”

Torii added that those figures do not paint a true picture of Nokia’s problems. “Nokia’s spreads do not reflect the severity of the company’s situation. It’s also getting more expensive to insure against default”.

While the company might stare financial hardship in the face, Nokia is aware that they will have to do something drastic in order to turn around their fortunes. “Nokia is implementing a decisive action plan to position our company for future growth and success. The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position,” said spokesman James Etheridge earlier in the year.

Nokia’s latest Lumia range has also failed to impress consumers, resulting in less-than-expected sales of their new smartphone. “Nokia’s Lumia was an attempt to catch up, but it was simply too little too late. I would not rule out the possibility of Nokia being downgraded further. The company is in a negative spiral that will be hard to reverse,” Nancy Utterback, credit strategist at Aviva Investors, told Reuters.

Nokia’s share price dropped to its lowest levels in 16 years on Friday, prompting analysts for French-based financial service Societe Generale to downgrade the share options to “sell”, meaning that it would be a good decision for share holders to get rid of the stock.

“Such an additional fall could be enough to burn through most of Nokia’s existing cash pile and even bring into question Nokia’s very survival,” Societe Generale analyst Andy Perkins told Reuters.

But it might not be all doom and gloom for the mobile phone maker, as some market analysts believe that Nokia can still pull it together – or receive help from software giant Microsoft.

Microsoft is currently paying Nokia around $1 billion a year to use its software on their Lumia smartphones, and is also Nokia CEO Stephan Elop’s former employer.

Charlie Fripp – Consumer Tech editor