Analysts: Nokia On Track To Burn Through Its Whole $6B Cash Pile In Next 2 Years

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The Facebook IPO is expected to usher in a day of massive trading volumes on the markets, and some believe that might translate to a lift for some tech stocks. But one that could really use some help has just been served another course of bad press: Nokia is apparently burning through its cash reserves — fast.

The company, for years the biggest mobile phone maker in the world, has fallen on very tough times, as competition from companies like Samsung, Apple and a barrage of inexpensive device makers, have translated into declines in sales, market share and profitability.

That’s now translating into what has been identified as another issue: the burning of the cash pile. In the last five quarters, Nokia has burned through €2.1 billion ($2.7 billion) from its cash reserves. Analysts polled by Reuters on average believe that at the rate Nokia is going, it will go through another €2 billion ($2.5 billion) in the next three quarters, with the total current cash pile of €4.9 billion ($6 billion) gone within two years.

To put that in some context, in 2007 Nokia had cash reserves of €10 billion in 2007 ($12.7 billion). That points to its cash pile burn accelerating — a result of the fact that the company has been trying to transform its business, which requires investment, while at the same time seeing massive sales drops:

In the company’s last quarterly earnings, reported April 18, Nokia reported that overall revenues were down by $4 billion (€3.4 billion) to $9.7 billion (€7.4 billion). Smartphones, the core of Nokia’s fightback strategy, declined by more than 50 percent both in revenues and unit sales, and the company saw a 40 percent drop in revenues from devices, its biggest business, with sales in those now at €4.2 billion. Nokia also swung to an operating loss of $1.7 billion, blaming the double-whammy of competition from Apple/Google as well as restructuring costs, as the company has pushed to put a stronger emphasis on its new line of smartphones in a race to gain back its rapidly disappearing market share in the higher-margin end of the smartphone market.

That market share has been slipping for some time now, but it was in the last quarter that it finally slipped enough to put Nokia into number-two behind Samsung. According to Q1 figures out earlier this week from Gartner, Nokia now has 19.8 percent of the mobile market to Samsung’s 20.7 percent. While Samsung’s sales have been rising, up to 86.6 million units from 68.8 million in the quarter a year ago, Nokia’s have been going in the reverse direction: now at 83.1 million units compared to 107.6 million a year ago.

Nokia currently has two tranches of credit bonds outstanding: bonds of €1.25 billion euros at 5.5 percent maturing in 2014 and €500 million of notes at 6.75 percent due in 2019. These have now reached the lowest investment grade status at S&P, Fitch and Moody’s with negative outlook.

“I would not rule out the possibility of Nokia being downgraded further,” Nancy Utterback, a credit strategist at Aviva Investors, told Reuters. “The company is in a negative spiral that will be hard to reverse.”

Reuters does also point out some bright spots. The company is expected to sell 20 million of its new Windows Phone-based smartphones this year, and 46 million next year. And if the company continues on its cost-reducing course, it could end 2012 with €2.8 billion ($3.6 billion) in net cash this year.

And there is another possibility that we will likely see raised more and more: a “white knight” in the form of a Microsoft acquisition. The software company  is already heavily entwined with Nokia over the use of the Windows Phone OS — paying Nokia $1 billion annually for this — a relationship that could well deepen if Nokia’s problems continue to grow.

 [Image: Images of Money, Flickr]