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Wall Street is now convinced that Nokia will sell its handset business

July 3rd, 2013 at 9:35 AM
Nokia Handset Unit Sale

Here is a puzzle: Nokia’s cash position has suddenly shrunk from 4 billion euros to 2-2.5 billion euros… but the company’s share price is higher than it was before Nokia announced it will spend 1.7 billion euros to buy full control in Nokia Siemens Networks. Wall Street is feeling perfectly calm even though it now looks like Nokia’s cash burn during the second quarter may have been as high as 850 million euros. Why aren’t investors freaking out about A) the cost of the Nokia Siemens Network acquisition and B) the confession about the handset division cash burn level during spring? At this rate, Nokia may run out of cash during the summer of 2014.

The most plausible answer is that Wall Street is now convinced that Nokia is going to sell its handset unit.

There is no reason to worry about the cash burn rate or current cash reserves if the phone division will be gone by Christmas. Spending nearly half of its cash reserves on the NSN acquisition was such a bold gambit that few people believe that Nokia would have made it without having a clear plan for exiting the phone business.

Is it really this easy? Can Nokia find a buyer for its phone unit even if the most motivated suitor, Microsoft, turned it down as recently as June?

One thing is certain: very close attention will now be paid to Nokia’s June-quarter feature phone unit volume when the company reports its spring numbers. The 10 million unit feature phone volume miss was the biggest negative surprise in the company’s first-quarter report — Nokia’s feature phone erosion is what likely drove Nokia’s spring cash burn in the second quarter. That is the issue that may determine how much money Nokia will burn next winter, and whether that number is going to be big enough to scare off suitors.

Everything now rides on how Nokia’s Asha phone range fared against competition from cheap Huawei and Micromax Android phones in Johannesburg and Mumbai over the past few months.

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