Nokia will avoid paying a dividend for 2012, as it used most of its cash reserves due to losses and massive investments needed to return on a market now dominated by newcomers such as Google and Apple. The impact of touchscreen smartphones, which has become the standard after the iPhone’s launch in 2007, proves to be unbearable for Nokia, according to a Bloomberg analysis.
The fall of the USSR, for some time one of the largest markets for telecommunication equipment made by Nokia, has caused serious financial problems for the Finnish company. However, this has not prevented it from paying dividends to shareholders.
Nokia is losing money and spends about $300 million monthly from cash reserves accumulated in 14 years of ruling the mobile market. The company failed to adapt quickly enough to the sudden popularity gained by smarthpones without a keyboard. This is mainly due to the iPhone, regardless of current market developments and preferences of users in terms of price, hardware specs and operating system.
The company remained a major player in the traditional phones with basic functions, where however competes with Chinese producers that deliver cheaper models due to lower costs. On the high-end phone segment, Nokia has lost its relevance in recent years, but this year managed to come with creative models based on Windows Phone operating system produced by Microsoft, well received by analysts and bloggers.
The Finnish group presented in early September, together with Microsoft, the new Lumia models with Windows Phone 8, which brings a high quality hardware design, a camera with optical image stabilization and a touch screen that can be used with gloves. The new Nokia smartphones will make their appearance on the market most likely in November. Lumia 920 will cost €629 and Lumia 820 will cost €429 on the German market.
Losses and massive investments needed to catch up with companies such as Samsung Electronics and Apple will prevent Nokia to pay dividends this year, analysts contacted by Bloomberg expect.
“The most important thing for Nokia is now to reinvigorate sales and return soon on profit. Till then, it would be logical not to pay dividends to preserve the little liquidity available,” commented analyst Mikael Anttila from SEB, Stockholm.
Avoiding paying dividends could send away investors seeking yield rather than long term performance, emphasizing the decline of Nokia shares, on a constant fall for the fifth consecutive year, during which it lost about 90% of market capitalization. The company announced the layoff of 20,000 employees, closed many factories and research centers and sold portfolios of patents and other assets to be able to continue.
Dividends paid by Nokia halved in the last four years, to 20 cents per share for 2011, according to Bloomberg data. To maintain this dividend in 2012, the company would have to pay out €750 million.
Nokia had losses of €2.34 billion in the first half of the year, and analysts expect that the group will still lose money for another year and a half, at best. Net cash reserves fell by half in the last five years to €4.2 billion as of end of June, and will drop by the end of this year to below €3 billion, according to Standard & Poor’s estimates. However, the company has a debt of €5.2 billion, of which it has to repay €1.25 billion in February 2014.
Sami Sarkamies, an analyst at Nordea Bank, Helsinki, believes that Nokia should have already waived the payment of dividends, since the rating of the company is “junk” at all three major credit rating agencies. “It was a mistake that they have not stopped paying dividends in the context of the difficult situation. Shareholders could suffer if, for example, Nokia will have to abandon plans to return to the smartphone segment because it will not be able to afford costs,” commented the analyst.
At the emergence of iPhone in 2007, Nokia controlled more than half of smartphone sales worldwide. Currently, the market share of the company on the smartphone segment is about 6.6%, while iPhone and Android phones have 85% of the market share.
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