Nokia (NOK) sold 7.4 million Lumia smartphones during the second quarter, with all but a fraction of those sales occurring outside North America. Average selling prices for handsets fell, and Nokia continued to lose share to Android phones in the lower end of the smartphone market. Second quarter revenue of 5.7 billion Euros, or $7.4 billion, was off 24% from the year-ago quarter, although the company’s losses narrowed in the wake of massive cuts in headcount.
The latest news from the Finnish company that once dominated the mobile phone business has some observers wondering if Nokia will eventually follow the lead of another Scandinavian wireless giant, by exiting the handset business and focusing instead on wireless networking gear. In 2011 Ericsson sold its remaining stake in its mobile phone business to Sony, and is now fully focused on infrastructure and software for wireless networks. One of its strongest competitors in this space is NSN, currently a joint venture owned by Nokia and Germany’s Siemens. But earlier this month Nokia announced plans to buy Siemens out of the venture and take full control of NSN.
This year, NSN has been the bright spot in Nokia’s otherwise gloomy financial picture. “Most notably, we benefitted from another strong performance at Nokia Siemens Networks, which continues to deliver well against its focused strategy,” said Nokia CEO Stephen Elop during yesterday’s earnings call. NSN contributed roughly $3.3 billion to Nokia’s net cash position during the second quarter. Nokia ended the quarter with net cash of $5.4 billion.
Nokia will need cash to complete its purchase of NSN, although Siemens is loaning it $650 million of the $2.2 billion purchase price. S&P recently downgraded Nokia’s long-term debt, noting that the company’s balance sheet will weaken in the wake of the acquisition. The ratings agency lowered Nokia’s long-term corporate credit rating from B+ to BB-, and said that in the event of a payment default, it gives Nokia a 50-70% chance of recovery.
S&P estimates that Nokia will end the year with roughly $1.7 billion in net cash. Currently, the company’s mobile device business is draining more cash than NSN is contributing. Although Nokia currently owns just half of NSN, it already consolidates all of its results according to S&P. So full ownership will not double NSN’s cash contributions to Nokia’s bottom line.
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