James Delahunty
18 May 2012 18:50
Serious questions raised about Nokia's future.
The Finnish mobile phone giant has been working to try and stabilize its finances. Over its past five quarters, it has wiped out €2.1 billion (about $2.7 billion) of its cash reserves. In a couple of years, it may burn through its total €4.9 billion reserves, analysts warn.
The cost of Nokia's debt has been rising, as questions about its ability to service its debt have been raised. "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.
In 2007, Nokia had €10 billion in cash reserves. In 2014, it has €1.25 billion of 5.5 percent bonds maturing, followed by ?500 million of 6.75 percent notes due in 2019. Both are junk rated by Fitch and Standard & Poor's.
It is also getting increasingly expensive to insure against a Nokia default.
The company had hoped its Lumia handsets would help it to gain a larger share of the smartphone market, as it attempts to catch up with Apple and manufacturers of Android handsets. "Nokia's Lumia was an attempt to catch up, but it was simply too little too late," said Nancy Utterback, credit strategist at Aviva Investors.
"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."