The benefit of the doubt
Over the past couple of years, Nokia has been committed to a transformation process aiming to strengthen its financial position and regain investors’ trust. So, since Nokia is in the middle of a turnaround effort, its quarter-over-quarter financial and operating performance provides the best indication of whether its business strategy has started to pay off.
The firm’s latest earnings release shows signs of improvement, with its non-IFRS results leaving room for optimism. Non-IFRS results exclude one time charges, such as charges associated with restructuring activities, and asset amortization. Thus, they are a measure of underlying performance.
During the past year, Nokia managed to narrow its net losses and somehow control its cash bleeding. It ended the last quarter of 2012 with underlying operating profitability of almost 8% and strengthened its net cash position by €800 million sequentially to €4.4 billion.
These figures do not suggest that Nokia has avoided the danger and is set for a rally this year. Nonetheless, the quarterly improvement of its liquidity could suggest that the company is on the road to recovery. It might be at the early stages of recovery, but still, Nokia seems determined to balance its accounts and shape a gainful outlook. It decided to suspend its dividend payments, and, even though, this was negative news for the market, for Nokia, it was a major step towards financial discipline.
Looking ahead
Looking forward into the future, the company is aiming to capitalize upon opportunities that could generate substantial returns.
The recent deal with is going to be a varying factor in Nokia’s regional competitive position. The leading Chinese mobile services provider agreed to carry the Lumia 920T, the first Lumia handset based on WP 8 software designed for the Chinese market. China Mobile Ltd. (NYSE:CHL)’s network has prevented it from carrying the iPhone. This means that, even though and sell subsidized iPhones, China Mobile’s immense subscriber base gives Nokia a unique competitive advantage. As of December 2012, the company had over 700 million subscribers, including almost 88 million users of 3G services.
Moreover, Nokia is gaining ground in the mapping world, where it has scored noteworthy wins. A year ago, the firm’s Location Platform was selected by Ford Motor Company (NYSE:F) for innovation projects. Just last week, Nokia beat Google to become Toyota Motor Corporation (NYSE:TM)‘s mapping supplier in Europe.
Overall, Nokia has a long way to go before it can augment its competitiveness and support robust revenue growth. Nonetheless, it has not quit the game, and is doing the best it can for a dynamic comeback. I believe that Nokia’s transformation policy, along with the growth potential arising from its strategic alliances, will eventually reward faithful shareholders.
The article Where is Nokia Heading? originally appeared on Fool.com and is written by Fani Kelesidou.
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