Major bank downgrades Nokia again, recommends break-up and sell-off

Nokia’s Lumia handsets have been met with broad approval by the media, who have praised the colourful and solid hardware designs, matched with the undeniably impressive Windows Phone OS. But when it comes to sales, the only opinion that really matters is that of the buyer – and consumers have so far failed to flock to Lumia handsets in anything like the numbers that Nokia had hoped for.

Little wonder, then, that many financial organisations continue to adjust their forecasts for Nokia downwards, as the company keeps failing to live up to its considerable potential. The latest organisation to downgrade Nokia is Credit Suisse, one of the world’s largest and most prestigious financial institutions, moving the company from a ‘Neutral’ rating to ‘Underperform’.

As StreetInsider.com reported this week, Credit Suisse’s assessment of Nokia suggests that the company will continue to burn through its cash reserves for the immediate future, and is likely to see further heavy operating losses during 2013. The transition to Windows Phone 8 – essentially another ‘reboot’ for Nokia’s smartphone range, as no first-generation Windows Phones will be eligible for upgrade – is expected to be “slow and challenging”, adding to Nokia’s woes.


Many believe Nokia underestimated the scale of the challenge of selling its Windows Phones in significant numbers

But far more damning than the rating downgrade is the suggestion that Nokia should realistically consider breaking the company up and selling off its most valuable components; Apple would be a candidate for acquiring Nokia’s valuable intellectual property portfolio, while Ericsson, Huawei and ZTE have been named as possible buyers for chunks of Nokia Siemens Networks. No-one, believes Credit Suisse, would have any realistic interest in acquiring Nokia as a single entity, indicating that a sell-off of the company as a whole would be unlikely.

But is any of this likely? Well, Nokia’s share price is trading well below book value – meaning that the total value of its shares (also known as its market capitalization) is less than the sum total of its assets (cash, patents, buildings, inventory, equipment etc) minus its debts – a situation that some refer to as “worth more dead than alive”. Selling high-value assets like its IP portfolio (estimated by some to be worth as much as $7.5bn) would certainly bring respite for beleaguered investors.  

But a complete break-up of the company is hugely unlikely, especially as Nokia isn’t really in the kind of immediate, terminal decline that some claim; its situation is perhaps best described as “prolonged stagnation”. The company still sells its feature phones in colossal numbers worldwide, and its Lumia smartphone sales are growing (albeit far slower than expected or hoped). Microsoft, too, has a vested interest in ensuring that Nokia remains a going concern (MS already pays $1bn a year to Nokia in ‘Platform Support Payments’ for Windows Phone usage, for example).


The ultimate Windows Phone that never was? Nokia sold its Vertu luxury handset division earlier this year

Nokia has already been selling off ‘non-core’ assets, such as its Vertu luxury device division (for around $250m); more recently, it was revealed this week that the company plans to sell off and lease back its global headquarters in Espoo, Finland, to bring in another $350m or so. We may yet see further non-core assets divested – perhaps even a sale of the company’s Navteq division to Microsoft, as suggested in this editorial from May – but Nokia’s situation would have to deteriorate considerably before investors are ready to take Credit Suisse’s advice, and call it a day on Nokia as we know it.


Source: StreetInsider.com | Top image via The Guardian

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26 Comments

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Yeah, I said elsewhere that the AT&T exclusivity announcement for the 920 AND 820 would do this and here it is.

They just. Don't. Get it.

I think these ******* analysts actually hurt the economics than actually help it. Besides Microsoft won't let Nokia going down. For the worst case scenario, they will buy off Nokia too.

rojorojo said,
What's interesting is that the banks who have supposedly seen WP8 have reversed their decision.

Would you mind to list them? I could be interested to accumulate Nokia as I am doing with RIM.

rojorojo said,
What's interesting is that the banks who have supposedly seen WP8 have reversed their decision.

Have they seen more than we have seen? Sounds like insider trading otherwise.

The main reason Nokia WP phones are not selling is because to many people they're NOT AVAILABLE. You cant get them at all in some countries, and in others only specific networks have them, sometimes just one network. So of course these phones wont be selling great.

Lots of people want the Lumia 920 though, so as long as it's actually available in more countries and on more networks then i'm totally sure it will do well. So far it's looking like it will atleast be more widely available.

There is a lot of Windows Phone hype still floating around, Windows Phone 7 hype didn't translate into a lot of WP7 sales. Then Nokia came on board and there was a lot of hype for WP7 Nokias (eg: Lumina 900), again not a lot of sales.

Now the hype has shifted to WP8 hype and WP8 Nokias (eg: Lumina 920).

Let's see... Not saying that Windows Phone 8 or Nokia WP8 phones are going to fail, I'm just saying this is the perspective that the analyst is coming from. WP8 could very well be a raging success, let's just hope that Windows Phone lives up to the hype sooner or later.

Yes I'm probably going to be trolled, as Neowin is at the forefront of MIcrosoft and Windows Phone hype.

The problem is availability. Many countries dont have Nokia WP or any WP phones at all, and in the countries that do have them, you can normally only get them on just one or two networks. See my comment below.

alwaysonacoffebreak said,
If these guys seriously belive that Nokia is selling away their IP's or Nokia-Siemens part they need to be fired once and for all time to come.

If the money raised gives an extra year or two for a turnaround why not.

XerXis said,
I think I'm going to become an analyst. Being paid to talk out of my rear sounds tempting

They looks at things from a money point of view, the Lumia's may / may not be good but if Nokia can't sell them in big enough quantities how good they are doesn't mean squat to the investors.

XerXis said,
I think I'm going to become an analyst. Being paid to talk out of my rear sounds tempting

Looks most stock investors only care about profit! And right now Nokia doesn't have much to know! Venture capitalists on the other hand look towards the future and invest accordingly!

thealexweb said,

They looks at things from a money point of view, the Lumia's may / may not be good but if Nokia can't sell them in big enough quantities how good they are doesn't mean squat to the investors.

Why this is true they don't seem to be taking into account that Nokia has been managing to sell more and more of them with each passing quarter.

GP007 said,

Why this is true they don't seem to be taking into account that Nokia has been managing to sell more and more of them with each passing quarter.

More Lumia's yes, but less overall. Their market share is declining rapidly, and the small number of Lumia sales isn't going to prop the company up.

Nokia should have diversified and sold Android, Meego, and Windows Phone, thereby spreading the risk, but instead Elop the trojan was sent in to Microsoftise Nokia. And what we have today is a company burning through its cash reserves at a shocking rate.

Soon it won't have any assets left after selling off all its properties, including its HQ. But I suppose there's one benefit to that - No one will want to buy them whole. So I see two outcomes here, either Nokia goes bankrupt and the receivers take over, or the company gets split up. Even its patent portfolio isn't worth that much when you consider how poorly FRAND patents are doing in the courts. Utility patents are significantly more valuable.