Smart phones vs. smart money

Last Updated: Sat, Jan 26, 2013 06:34 hrs

Investors remain justifiably twitchy about Nokia. Full-year results from the Finnish mobile-maker offset some of the optimism following strong preliminary numbers two weeks ago. The new report holds no big surprises - but underscores just how tough it will be to pull off one of the biggest turnarounds in tech history.

While it makes good headlines, no-one should be surprised that Nokia scrapped its 0.20 euro-a-share dividend. If ever there was a time to husband cash, this is it. Tech titans are rarely dividend gushers anyway. Still, the decision is a reminder of how far Nokia has fallen. In the halcyon days of 2007, Nokia's dividends peaked at about 2 billion euros (or 0.53 euros a share) and it bought back 5 billion euros more in stock. Then the iPhone hit.

More troubling is confirmation that an alliance with Microsoft will soon turn from safety net to financial millstone. The software giant is propping up the hardware maker with "platform support payments" of $250 million a quarter. The money eases the weaker partner's costly switch to Microsoft's Windows software for smartphones. But as of this year, Nokia's royalty payments for the operating system will start to outstrip Microsoft's front-loaded payouts, so that the final bill roughly balances. By 2015, Bernstein reckons the balance will turn into a cash drain of nearly $100 million a quarter from Nokia.

The announcement also provided a painful reminder of how far Nokia's flagship Lumia range needs to travel in the United States, a vital smartphone market. Nokia hailed a big pickup in Stateside sales - but sold just 0.7 million mobile devices there in the fourth quarter. And a warning on seasonality - the first quarter of the year usually brings weak sales of mobiles and network gear - hardly enhanced the mood.

Nokia remains a deeply unpopular stock, sold short by many sceptical hedge funds: as of Jan. 22, nearly 18.8 per cent of its Helsinki-listed shares were on loan, Markit data shows. Nokia Chief Executive Stephen Elop still has a lot to prove.

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