Nokia calling for Microsoft’s aid amid fierce competition

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Nokia CEO Stephen Elop. Photo - Conversations.Nokia.com

Chief Executive Stephen Elop took over the reigns of Nokia in September 2011 and just four months into the job, he made a dramatic statement that the then world’s biggest mobile maker is standing on a burning platform.

The market situation is reflective of the CEO’s statement. Nokia’s Lumia mobile range has been in the market from at least year and a half but is yet to revive the company’s fortunes. In addition to that, the mobile maker’s shares have also lost 90% of its value during the last five years with three major rating agencies downgrading its credit rating.

Analysts attribute Nokia’s downfall to Apple’s iPhone that redefined the smartphone market in 2007. Many observers are seeing Nokia-Microsoft tie up with great skepticism.

However, Microsoft is taking its relationship with Nokia very seriously because it was the software giant’s first breakthrough into smartphone market after years of heavy investment in cellular technologies. Most cellphone makers snubbed Mircosoft’s advances during this time, preferring their own software or favouring Google’s Android.

Sami Sarkamies, analyst at Nordea believes this support can help Nokia during financial difficulties. “If Nokia ends up in financial difficulties I believe the helping hand would be there,” he said.

Gaining Financial Support

Nokia has already receiving $1 billion a year by Microsoft to use its software on Lumia smartphones. Even some technology bankers feel that the support could extend if Nokia’s problem intensifies.

“I don’t see Microsoft owning Nokia, but it would defiantly provide financing to the tune of a couple of billion dollars,” said technology banker.

Microsoft Inc has got nearly $60 billion of cash reserves and has traditionally steered clear from hardware business as it doesn’t want to have competition with manufacturers that uses its software.

Many bankers also feel that, Nokia with a market value of $12.2 billion, isn’t that tough target for other cellphone manufacturers because the company has a good relationship with Microsoft.

“I don’t see it as a target for private equity either. It is still too expensive and too volatile. You should have to be prepared to catch a falling knife,” said a banker.

Other Selling on Talks

According to the market sources, Nokia is in talks to sells its British luxury subsidiary Vertu, which is known for its expensive mobile phones.

Analysts believe Nokia’s selling of Vertu to private equity firm Permira would generate only a few hundred million euros.

Bankers also believe that Nokia’s other assets can have potential buyers, which includes several intellectual property portfolio, believed to be the “best in the industry”.

Elop on the other hand, told that the company’s shareholder meeting that took place on May 3 that he was not planning to any wider patent sales. Moreover, he saw the location and mapping business, built on $8.1 billion acquisition of US firm Navteq, and has considered as the core assets which would be later sold out if needed.

Currently, Nokia Siemens Networks (NSN) is the only asset that has the potential to get good returns if sold out. However, last year its parent companies Nokia and Siemens tried to sell NSN to private equity, but the process stalled over pricing.

Nokia’s Lower Debt Rating

Nokia’s debt rating was downgraded to BB+ last month. Credit rating agencies have given Nokia a long term negative outlook which would eventually bring the company at risk of having its debt downgraded again.

The Finnish company is currently finding it hard to compete with Apple and other smartphone making companies. Stephen Elop has also warned the company would be involved in cost cutting in upcoming months.

Sources: Reuters, CNN Money

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