The new Windows software has yet to win over users and may not be the catalyst Nokia is expecting, Kai Korschelt, an analyst at Deutsche Bank AG in London, said in a Sept. 6 note. Apple and Google are likely to keep dominating smartphone sales, Korschelt wrote, with Android potentially gaining strength in the lower end of the handset market, which has long been Nokia’s stronghold. That would leave “limited room” for Windows handsets, Korschelt said.
And with restructuring costs still to come this year and next, the company’s free cash flow won’t become positive until after 2014, Korschelt said.
The sputtering demand for Windows-based phones means Nokia “could well warn for the third quarter, or at least miss expectations,” Pierre Ferragu, an analyst at Sanford C. Bernstein Ltd. in London, said in a Sept. 14 note.
The most likely outcome is Nokia facing three years of “difficult transition,” serving a niche Windows Phone market and keeping a decent volume of business in low-end phones -- a scenario that would deplete most of its cash, Ferragu said.
With Nokia no longer the biggest handset maker, its primary challenge will be to get its debut and spending down to a level that’s more appropriate for a company of its current size, said Arne Eidshagen, who helps manage about 350 million euros in high-yield debt, including Nokia’s, at Alfred Berg Asset Management in Oslo.
“The danger with a fallen angel like Nokia.” Eidshagen said, “is that they can’t shrink the balance sheet to meet the new environment.”
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