Report: Nokia may halt dividends in fight to preserve dwindling cash

The speed at which Nokia burning through its cash reserves is causing investors to worry that the embattled company could cancel its dividend, a move that has not happened for decades.

Nokia will start selling the Lumia 920 in November.

The company is consuming around €230 million a month in cash, according to Bloomberg, potentially leading to Nokia's net cash reserve falling to below €3 billion by the end of this year. Its net cash position has shrunk by 50 per cent in the past five years to €4.2 billion as of the end of June.

Nokia, which has paid a dividend every year since at least 1989, could now struggle to make payments to investors which would cost the company c750 million if it is to maintain dividends at the current rate. Nokia has already cut dividends by more than 50 per cent over the past four years to 20 cents a share, according to data compiled by Bloomberg.

With Nokia's debt (currently at €5.2 billion) at junk status with the three main rating companies, Sami Sarkamies, a Nordea Bank analyst based in Finland, said it should already have suspended dividends.

"It was a mistake not to stop the dividend payment given the weakened outlook," he told Bloomberg. "This may cost shareholders dearly if Nokia for example needs to pull the plug early on its smartphone revamp due to not being able to afford the costs."

Stockholm-based corporate bond manager for SEB, Mikael Anttila, believes that more crucial for Nokia is an upturn in sales and an early return to profitability. "Until then, it would be rational for them to not pay dividends, to help maintain what cash they have," he said.

Elsewhere, Nokia has announced it will start shipping its new Lumia Windows Phone 8 smartphones to European operators, with Italian and Swedish service providers being the first to disclose plans to sell the new handsets starting from early November.

Telecom Italia, Vodafone Italia, 3 Italia and Wind will sell the high-end Lumia 920 for €599 and the mid-range Lumia 820 for €499, before taxes and subsidies.

However, analysts have questioned Nokia's pricing strategy for its Lumia 920 with it being pitched cheaper than the new iPhone 5 but higher than the Samsung Galaxy S III in some markets--accepting that pricing is set by local retailers, who buy handsets in bulk from Nokia.

Commenting to Reuters on this approach, Ben Wood, head of research at CCS Insight, said: "Nokia will find it difficult to command a premium over Samsung's Galaxy S III which is the pricing benchmark for a non-Apple flagship smartphone."

For more:
- see this Bloomberg article
- see this Reuters article
- see this The Verge article
- see this separate Bloomberg article

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