As Nokia Oyj depletes its cash pile amid a prolonged turnaround effort, investors are bracing for something that hasn’t happened in decades: No dividends.
The unprofitable phonemaker is consuming about $300 million a month, and many investors and bondholders say the company risks running out of funds as it struggles to gain traction for its smartphones, which trail Apple Inc.’s iPhone and devices using Google Inc.’s Android.
“Most crucial for Nokia now is to turn around their sales and reach profitability as soon as possible,” said Mikael Anttila, who helps manage corporate bonds, including Nokia debt, at SEB AB in Stockholm. “Until then, it would be rational for them to not pay dividends, to help maintain what cash they have.”
Without a dividend, Chief Executive Officer Stephen Elop risks alienating yield-focused investors at a time when Nokia’s stock price is headed for its fifth consecutive annual decline.
The cash concerns underscore the depth of Nokia’s crisis. The company has paid a dividend every year since at least 1989, which is as far back as its electronic records go. Even the breakup of the Soviet Union, a major buyer of Nokia’s networking gear whose demise spelled financial tumult for the company more than 20 years ago, didn’t prevent it from returning cash to investors.
Nokia, based in Espoo, Finland, will probably omit the payout for 2012 after slashing it by more than half over the past four years to 20 cents a share, according to data compiled by Bloomberg. To maintain the dividend at its current level, Nokia would have to pay about 750 million euros ($964 million) annually out of its dwindling bank account.
Doug Dawson, a spokesman for Nokia, declined to comment on dividend plans. The phonemaker typically announces its annual payout when it reports fourth-quarter earnings in January.
Founded in 1865 as a pulp and paper mill on the Nokia River, the company expanded into mobile phones in the 1980s and became Europe’s most valuable corporation at the height of the technology boom. But Nokia was slow to adapt as touchscreen smartphones became the real drivers of the mobile handset market, and its stock has plunged about 90 percent since Apple introduced the iPhone in 2007.
The company has announced more than 20,000 job cuts, closed production and research facilities and sold patents and other assets in a bid to become profitable again.