Nokia may scrap investors' dividends as cash rapidly runs out

Shareholders are bracing for another shock as phonemaker tries to rebuild its market share

PUBLISHED : Friday, 28 September, 2012, 12:00am
UPDATED : Friday, 28 September, 2012, 2:54am

As Nokia 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 US$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 iPhone and devices using Google Android operating system.

"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 in Stockholm. "Until then, it would be rational for them to not pay dividends, to help maintain what cash they have."

Without a dividend, Nokia chief executive Stephen Elop risks alienating yield-focused investors at a time when the company'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, did not prevent it from returning cash to investors. Nokia, based in Espoo, Finland, will probably omit this year's payout after slashing it by more than half over the past four years to 20 US 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 (HK$7.4 billion) 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 touch-screen smartphones became the real drivers of the mobile handset market, and its stock has plunged about 90 per cent 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.

Nokia lost €2.34 billion in the first half and analysts estimate losses will continue at least six more quarters, the average projections show.

Its net cash has shrunk by half in the past five years to €4.2 billion at the of June and will drop below €3 billion by year-end, Standard & Poor's predicts.