Nokia: On the verge of bankruptcy?

July 31, 2016

By GlobalPost WriterHenry Blodget, Business Insider

An advertisement for the new Nokia Lumia mobile phone is displayed at a Nokia flagship store in Helsinki on April 19, 2012. Finnish mobile telephone maker Nokia said on April 19 that it suffered a net loss of 929 million euros ($1.2 billion) in the first three months of the year, partially due to mixed reviews of the Lumia.
Markku Ulander

Nokia just blew its first quarter earnings, in part because sales of its new iPhone-killer, the Lumia, have been "mixed." (Read our Lumia review here.)

That's bad.

But here's what's worse.

The company is burning cash at a mind-boggling rate, and it's about to run into a cash crunch.

Nokia still has €4.9 billion of "net cash" on its balance sheet (cash less debt) and €9.8 billion of total cash. That's a lot. But in the past year, Nokia has gone from comfortably making money to losing a lot of it.

In the past year, Nokia has burned €1.5 billion. In the past quarter, it burned a staggering €700 million. At the first quarter's burn rate, Nokia would blow through its net cash in 7 quarters (less than two years) and its total cash in four years.

The cash situation has gotten dire enough that Nokia CEO Stephen Elop is already talking about the need to conserve it. When a company that knows it needs to be super-aggressive to have any chance of saving itself starts talking about the need to conserve cash, you know there's a problem.

A couple of years ago, when Elop took over the cratering company, he wrote a famous, ballsy memo likening Nokia's situation to being on a "burning oil platform" in the middle of the ocean. Doing nothing, Elop said, meant certain death. Jumping off the platform into the swirling ocean, meanwhile, meant a shot at life. And so Elop jumped off the platform and bet the company on Microsoft's Hail Mary attempt to catch up in the mobile market–Windows Mobile.

This was a ballsy and necessary move by Elop and Nokia.

Alas, the reason jumping off a burning oil platform in the middle of the ocean seems crazy is that the chance of surviving is very low.

And Nokia may well drown.

Here's a summary of Nokia's first quarter. Check out those horrifying year-over-year comparisons, as well as the operating cash loss. The total cash burn is even higher, because of capital expenditures.