Investors fear Nokia collapse
The slide in the value of the Nokia stock continued on the New York Stock Exchange on Wednesday; share price down further in early Helsinki trading on Friday
The mobile phone manufacturer Nokia’s share price continued to slide in New York on Wednesday after the company had warned on Tuesday that its second-quarter sales and margins would be much lower than expected.
Never before in the current millennium has Nokia’s future looked as uncertain as today, analysts feel.
The demand for Nokia handsets is eroding so rapidly that the company is unable to estimate its profit development for the coming autumn.
On Wednesday, the company’s share price dropped by almost 5 per cent on the New York Stock Exchange, but in Helsinki the share price declined by less than 1 per cent from its Tuesday close, when it had shed more than 17% of its value in heavy trading.
Thursday saw the Helsinki bourse closed for Ascension Day, but early trading on Friday has shown no steadying of the ship, as Nokia had fallen a further 5% by noon to slip under the EUR 4.50 marker.
Tim Boddy, an analyst at Goldman Sachs International, estimates that the rapid fall in Nokia’s market share is bound to endanger the company’s economies of scale, particularly when it comes to the delivery of its products.
This can make it difficult to strengthen the company’s market position with new phones based on Microsoft’s Windows software.
According to Boddy, Nokia’s Windows phones will not be available in several price categories any sooner than by the middle of next year. If this estimate holds true, Nokia’s current stumble could become more critical.
Because of the anticipated phase-out, investors do not believe that a reform of the Symbian platform could prevent the decline in the demand for Nokia phones from continuing.
Nomura analyst Stuart Jeffrey also estimates that Nokia ’s difficulties are hardly likely to ease this year.
Jeffrey predicted earlier that Nokia’s earnings per share would be reduced to EUR 0.54 this year.
On Wednesday, he downgraded his forecast by 15 per cent to EUR 0.46.
In 2010, Nokia’s EPS stood at EUR 0.61.
One reason for the continued plunge in Nokia’s share price in New York on Wednesday was probably the fact that some investors are short selling, hoping to profit from a decline in the price of shares between the sale and the repurchase.
”As the company’s situation is very unclear, speculators can make hay”, says Timo Ritakallio, the Deputy CEO of the mutual pension insurance company Ilmarinen, which is the largest Finnish owner of Nokia.
In his report, Tim Boddy compares Nokia’s situation with the collapse of the US mobile phone manufacturer Motorola’s phone business in early 2007.
Motorola built its success on the RAZR cellphones, the demand for which declined rapidly at the end of 2006.
Motorola’s mobile phone business has still not recovered from the collapse.
Nokia announced in its profit warning on Tuesday that its ”second quarter 2011 Devices & Services non-IFRS operating margin could be around breakeven”.
This triggered panic among investors and led to the double-digit falls in the already battered Nokia stock that were seen on Tuesday afternoon.
The decline was almost as steep as that witnessed in February on the announcement of Nokia's strategic partnership with Microsoft.
Nokia CEO Stephen Elop asserted on Tuesday that the company does not plan any new cost-cutting measures.
The company’s target is to reduce its fixed costs by EUR 1.0 billion by 2013.
The aim is to axe 7,000 jobs worldwide.
By issuing an exceptionally gloomy profit warning, Nokia brought home to investors that the company’s problems, which have been accumulating over many years, really are large.
The profit warning also implies that giving up Symbian was the right decision, as it no longer attracts consumers, who are increasingly turning to the Android platform, even over Apple's' IOS4.
Whether the Nokia phones using the Microsoft platform will arrive soon enough or be attractive enough to turn things around is another matter altogether, and is also related to the uptake of applications for the phones. Right now Android phones are tempting countless software developers to produce new apps, which also increase the attractivness of the phones to the end-consumers.
When it comes to Finland's economy as a whole, Nokia’s difficulties do not shake the foundations of the nation in the sort of fashion that they might have done some years ago.
The major part of the company’s mobile phones are manufactured abroad, where also most of the company’s employees live.
The European Commission predicts that Finland’s GDP will increase briskly in the current year, namely by 3.7 per cent.
Among the eurozone countries, only Estonia is forecast to enjoy stronger growth.
Previously in HS International Edition:
Nokia shares plummet after company issues profit warning (1.6.2011)
Nokia result exceeds gloomy analysts´ forecasts, but outlook remains cloudy while smartphone sales lag behind the competition (21.4.2011)
At least in Finland, Nokia continues to have a strong foothold in the smartphone market (1.3.2011)
Nokia´s new strategy prompts suspicions among investors and consumers alike (15.2.2011)
Nokia Stock exchange release 31.5.2011