Nokia to skip dividend for first time in 143 years; shares drop

January 24, 2013 06:18 AM

Nokia Oyj will skip a dividend for the first time in at least 143 years as the struggling Finnish mobile-phone maker retains cash for its comeback attempt.

The company announced the decision as it reported a seventh straight drop in quarterly revenue and U.S. phone sales trailing estimates, sending its stock lower. Even the World Wars and the breakup of the Soviet Union, a major buyer of Nokia’s networking gear, didn’t stop the former maker of rubber boots and toilet paper from returning cash to investors.

Chief Executive Officer Stephen Elop has cut more than 20,000 jobs and is conserving cash to challenge Apple Inc. and Google Inc. with devices running Microsoft Corp. software. Cost cuts helped Nokia post its first profit since early 2011 after racking up losses of almost 5 billion euros ($6.7 billion).

The dividend omission “is a very important step because it shows management is conscious of the work that is ahead,” said Eric Beaudet, an analyst at Natixis Securities in Paris. “It’s clearly a strong signal to the market that says ’Don’t worry about our balance sheet, we’ll do what it takes.’”

Nokia was projected to forgo a payout, according to a Bloomberg dividend forecast. To maintain the dividend at its previous level, Nokia would have had to pay about 750 million euros from its reserves. The company’s net cash rose to 4.4 billion euros at the end of the fourth quarter, and the payout omission will “ensure strategic flexibility,” Nokia said.

Lumia Sales

Nokia shares fell 5.5 percent to 3.30 euros at the close in Helsinki. They have lost more than half their value since February 2011, when Nokia said its phones would run Microsoft’s Windows. Still, the stock has recovered from July’s low of 1.37 euros as investors reassessed Nokia’s chances of recovery.

As part of his reorganization, Elop has closed production and research facilities and sold patents and other assets. He has introduced smartphones including the Windows-based Lumia 920, which is carried by AT&T Inc. in the U.S.

Lumia unit sales rose to 4.4 million in the fourth quarter and total sales fell to 86.3 million phones, including 700,000 units in North America. Sales in China slid 69 percent to 4.6 million units. Apple said yesterday it sold 47.8 million iPhones globally during the period. Android shipments rose to 136 million units in the third quarter, according to researcher IDC.

“U.S. volumes are very weak,” said Mikko Ervasti, an Evli Bank analyst in Helsinki, who predicted North America sales of 1.2 million Lumias. “U.S. ramp-up is not going as expected.”

Nokia’s fourth-quarter net income was 202 million euros, or 5 cents a share, compared with a loss of 1.07 billion euros, or 29 cents, a year earlier. Analysts projected a loss of 7 cents. Net sales declined 20 percent to 8.04 billion euros, compared with the 8.1 billion euros analysts estimated.

Pulp, Rubber

Nokia started as a wood-pulp and paper company in 1865 before expanding into rubber, electronics and eventually telecommunications. The company has paid a dividend every year since at least 1871, according to electronic records, Nokia’s centennial jubilee tome published in 1965 and printed annual reports reviewed by Bloomberg at the National Library of Finland. No data for 1865 to 1870 were available.

Once the world’s largest smartphone maker, Nokia’s market share topped 50 percent before Apple’s iPhone and Google’s Android operating system were introduced about five years ago. Nokia has lost more than 80 percent of its market value since then and fallen outside the top-five smartphone makers.

Elop, who joined from Microsoft in 2010, started betting on his former employer’s operating system after Nokia’s homegrown Symbian software fell out of favor among consumers.

Cash Concerns

Investment in the new strategy has yet to reverse falling sales, and investors have worried over Espoo, Finland-based Nokia’s cash position as it struggles to win back consumers.

“Nokia first had to cut back on expenses and they have done a good job of securing the balance sheet, so now they need to boost sales and get consumers to buy more Lumias,” said Morten Imsgard, an analyst at Sydbank A/S. “It’s still too early to see how well they will succeed at this.”

Nokia’s debt is ranked BB- at Standard & Poor’s and Fitch Ratings and an equivalent Ba3 by Moody’s Investors Service, three levels below investment grade. All three raters have a negative outlook on Nokia. S&P said in August it may downgrade Nokia again if the company failed to stabilize margins and “significantly cut its cash losses.”

Profit Margins

The company’s devices unit had an operating margin of 1.3 percent in the fourth quarter excluding some items, the first profit in a year and a sign the company is making progress with its cost reductions. In the current quarter, the handset unit will probably have an operating loss equivalent to 2 percent of sales, Nokia said this month. That prediction has an error margin of plus or minus 4 percentage points.

“We are still moving through a very challenging transition, but it is the case today that our products are significantly more competitive,” Elop said today on a call with reporters. “We’ve shown how we can effectively balance our cash and liquidity through this period.”

Nokia Siemens Networks, the phone-equipment venture of Nokia and Siemens AG, topped Nokia’s earlier estimates with fourth-quarter operating profit of 14.4 percent of sales, excluding some items. In October, Nokia Siemens posted its first quarterly sales increase and profit since 2011, helped by demand for long-term evolution, or LTE, networks that allow faster data speeds.

The network venture plans to reduce costs by more than 1 billion euros by the end of this year, compared with the end of 2011, Nokia said today. Its previous target was to reduce costs by 1 billion euros over that span.

Nokia and Siemens abandoned talks with private-equity companies in July 2011 over the network venture as the buyout firms failed to come up with a compelling offer. The parents said two months later Nokia Siemens would “become a more independent entity.”

Bloomberg News

About the Author