By Josie Cox and Tarmo Virki

Fri May 18, 2012 5:19am EDT

LONDON/HELSINKI, May 18 (IFR/Reuters) – Nokia Oyj is tearing through its cash reserves at an unsustainable rate, raising what some analysts say are serious questions about the struggling Finnish phone maker’s ability to stabilize its finances in the months ahead.

With the cost of Nokia’s debt rising, the most bearish of analysts in a Reuters poll said the company could even be at risk of default if it fails to slow the burning of its cash.

Over the past five quarters, the onetime darling of mobile telecoms has eroded its cash pile by 2.1 billion euros ($2.7 billion) – a rate that would wipe out its entire 4.9 billion euros reserves in a couple years.

Analysts on average expect the company will burn through almost 2 billion euros more in just three quarters, while the most bearish see the company wiping out its 4.9 billion euros net cash buffer completely next year, a Reuters poll of 30 banks and brokerages showed on Friday.

“In our opinion, the company’s ability to repay even its shorter-term 2014 bond could be an issue,” said Societe General credit analyst Juliano Torii.

The company, which had more than 10 billion euros in cash on hand in 2007, has two bond issues outstanding, 1.25 billion euros of 5.5 percent bonds maturing in 2014 and 500 million of 6.75 percent notes due in 2019.

The bonds – both junk-rated by Fitch and Standard Poor’s – are trading at record wides versus mid-swaps (a money market benchmark), at around 400 basis points and 683 bp respectively. And those levels may still not be wide enough, some say.

“Nokia’s spreads do not reflect the severity of the company’s situation,” said Torii.

It’s also getting more expensive to insure against default.

Five-year credit default swaps (CDS) were at 749 bp on Friday – an all-time high, according to Markit. Since its year-low of 309 in late January, it has therefore increased some 142 percent. According to according to Gavan Nolan, director of credit research at Markit, this implies a default probability of 49 percent over the next five years.

A Nokia spokesman said improving cash flow was an important goal.

“Nokia is implementing a decisive action plan to position our company for future growth and success,” spokesman James Etheridge said. “The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position.”

NO LIGHT FROM LUMIA

Nokia, which once ruled the mobile phone roost, was wrongfooted by the rise of smartphones. And while it may have hoped the iPhone phenomenon was close to running its course, Apple Inc last month said quarterly profit had almost doubled in the first quarter of 2012, quieting talk that its days of sharp growth were over.

Meanwhile Nokia’s response to the iPhone, the Lumia, has not so far demonstrated it can compete.

“Nokia’s Lumia was an attempt to catch up, but it was simply too little too late,” said Nancy Utterback, credit strategist at Aviva Investors.

“I would not rule out the possibility of Nokia being downgraded further,” Utterback said. “The company is in a negative spiral that will be hard to reverse.”

Societe Generale analysts this week downgraded Nokia stock – which was down 1.2 percent early on Friday, having slumped to its lowest in about 16 years – to a to “sell” and warned that the company’s operating losses and restructuring costs could accelerate a decline in sales.

“Such an additional fall could be enough to burn through most of Nokia’s existing cash pile and even bring into question Nokia’s very survival,” SocGen analyst Andy Perkins said in a note.

Not everyone is quite so pessimistic.

While the most bearish analysts doubt Nokia’s ability to retain a cash buffer, the average estimate in the Reuters poll was for the company to end 2012 with 2.8 billion euros in net cash.

If it can succeed in reducing the speed of its cash burn, it would be unlikely to face major hurdles in paying off its shorter-dated bond.

“The group appears to have sufficient liquidity, even under some reasonably onerous operating assumptions,” said Jens Vanbrabant, lead portfolio manager at European Credit Management.

And there is some optimism as Nokia gears up production of new smartphones using Microsoft Corp’s Windows Phone software. Analysts on average expect Nokia to sell 46 million of the phones next year, compared with 20 million expected this year.

But the rapid reversal in the company’s fortunes has given Nokia a steep hill to climb.

“There are chances for Nokia to shape up and recover, but it’s going to be tough,” one corporate banker said. “The TMT market is fast moving, and even one slip-up can cost a company its whole future.”

If Nokia fails to improve its fortunes, some bankers say Microsoft could become a white knight. After all, not only is Lumia’s software based on that of Microsoft, it also happens to be Nokia Chief Executive Stephen Elop’s former employer.

Microsoft is already paying Nokia $1 billion a year to use its software on Lumia smartphones. And some investment bankers familiar with the technology sector said the support could extend well beyond that amount, if Nokia’s problems intensify.

($1 = 0.7869 euros)

(Editing by David Holmes)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/kYgVlj-xiVU/us-nokia-cash-idUSBRE84H0BD20120518

By Alexei Oreskovic

Fri May 18, 2012 12:30am EDT

(Reuters) – Investors are bracing for Facebook’s Wall Street debut on Friday after the world’s No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

Valued at $104 billion, Facebook is larger than Starbucks Corp and Hewlett-Packard combined, sparking intense speculation on how much higher its valuation will rise once shares start trading.

“A 15 to 20 percent pop is in the realm of possibility,” said Tim Loughran, a finance professor at the University of Notre Dame. “Given they already moved their IPO range up and increased the size, that’s bullish to begin with.”

Facebook priced its offering at $38 a share on Thursday, but the price could be higher when shares begin trading under the FB symbol on the Nasdaq at around 11 a.m. Eastern Time.

Some expect shares could rise 30 percent or more on Friday, despite ongoing concerns about Facebook’s long-term money-making potential. An average of Morningstar analyst estimates puts the closing price for Facebook shares tomorrow at $50.

The IPO, expected to mint more than a thousand paper millionaires at the company, has received wall-to-wall media coverage and sparked hopes of a boom in sales of everything from San Francisco Bay Area real estate to automobiles.

Facebook employees marked the event with an all-night “hackathon” at the company’s Menlo Park, California headquarters starting on Thursday evening, a tradition in which programmers work on side projects that sometimes turn into mainstream offerings.

Facebook’s 28-year-old founder and Chief Executive Mark Zuckerberg was expected to ring a bell at the company’s Silicon Valley headquarters on Friday morning to kick off trading on the Nasdaq.

Founded in a Harvard dorm room in 2004, Facebook has grown into the world’s dominant social network with 900 million users.

At $38 a share, Facebook would trade at over 100 times historical earnings versus Apple Inc’s 14 times and Google Inc’s 19 times.

For all the high expectations surrounding Facebook, the company faces challenges maintaining its growth momentum.

Some investors worry the company has not yet figured out a way to make money from the growing number of users who access Facebook on mobile devices such as tablets and smartphones. Meanwhile, revenue growth from Facebook’s online advertising business, which accounts for the bulk of its revenue, has slowed in recent months.

“With mobile usage growth exceeding desktop, monetization in the near term could be reduced given little-to-no ad coverage on mobile, challenged by limited screen sizes,” said a report last week from Susquehanna Financial Group.

GM said on Tuesday it would stop placing ads on Facebook, raising questions about whether display ads on the site are as effective as traditional media.

(Reporting By Edwin Chan; Editing by Ryan Woo)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/-pBffBgZRwU/us-facebook-idUSBRE84G14Q20120518

Verizon Wireless, after saying it would seek to phase out unlimited data for millions of its customers, said there was one surefire way for subscribers to keep their all-you-can-eat plans: Pay full price for their smartphones.

The carrier said Wednesday that third-generation customers upgrading to the high-speed mobile broadband network known as 4G LTE would soon be required to drop their $30-a-month unlimited data plans, likely forcing them to pay more to stream video, music and download photos.

Verizon Wireless, which is co-owned by Verizon Communications Inc. and Vodafone Group PLC, said the change would coincide with the introduction of plans that allow people to use multiple mobile devices on one of several capped-data plans it will unveil this summer.

In an email Thursday, a Verizon Wireless spokeswoman said customers willing to pay full price for a smartphone — allowing the carrier to avoid the costly subsidies usually associated with a two-year contract — could keep their unlimited data plans when upgrading to the speedier network.

Carriers have been trying to limit the upfront sums they pay manufacturers for the phones they offer. The discounts they give customers in exchange for a two-year contract hurt profits.

Smartphones aren’t cheap for customers either. A Motorola Mobility Holdings Inc. Droid 4, for instance, costs $549.99 without a contract and a 16-gigabyte Apple Inc. iPhone 4S, which runs only on 3G networks, is $649.99. Verizon Wireless offers both devices for $199.99 with a two-year data plan commitment.

“Customers won’t be automatically moved to new shared data plans,” said the spokeswoman, Brenda Raney. “If a 3G or 4G smartphone customer is on an unlimited plan now and they don’t want to change their plan, they won’t have to do so.”

Over time, however, Verizon Wireless hopes to move all of its customers off unlimited data plans and into so-called tiered-pricing plans that place caps on monthly usage.

NEW YORK (AP) – Facebook is about to find out just how much status updates, puppy photos and billions of “likes” are worth on Wall Street.

Facebook’s stock is set to begin trading on the Nasdaq Stock Market on Friday, the day after the world’s definitive online social network raised $16 billion in an initial public offering that valued the company at $104 billion. That’s more than Amazon.com and other well-known companies such as Kraft, Walt Disney and McDonald’s.

It’s a big windfall for a company that began eight years ago with no way to make money.

Facebook priced its IPO at $38 per share on Thursday, at the top of expectations. Now, regular investors will have a chance to buy stock in Facebook for the first time. The stock will trade under ticker symbol will be FB.

Facebook’s offering is the culmination of a year’s worth of Internet IPOs that began last May with LinkedIn Corp. Since then, a steady stream of startups focused on the social side of the Web has gone public, with varying degrees of success. It all led up to Facebook, the company that’s come to define social networking by getting 900 million people around the world to share everything from photos of their pets to their deepest thoughts.

It has done so while managing to become one of the few profitable Internet companies to go public recently. It had net income of $205 million in the first three months of 2012, on revenue of $1.06 billion. In all of 2011, it earned $1 billion, up from $606 million a year earlier. That’s a far cry from 2007, when it posted a net loss of $138 million and revenue of $153 million.

“They could have gone public in 2009 at a much lower price,” said Nick Einhorn, research analyst at IPO investment advisory firm Renaissance Capital. “They waited as long as they could to go public, so it makes sense that it’s a very large offering.”

Facebook Inc.’s valuation is the third-highest in an IPO, according to Dealogic, a provider of financial data. Only two Chinese banks, Agricultural Bank of China in 2010 and Industrial and Commercial Bank of China in 2006, have been worth more. They were worth $133 billion and $132 billion, respectively. By another measure _the amount raised_ Facebook ranks third among U.S. IPOs. The largest was Visa, which raised $17.9 billion in 2008. No. 2 was Enel, a power company, and No. 4 was General Motors, according to Renaissance Capital.

The $38 share price is the price at which the investment banks arranging the offering will sell the stock to their clients. In an IPO, the banks buy the stock first from the company and the early investors and then sell to the public. If extra shares reserved to cover additional demand are sold as part of the transaction, Facebook and its early investors stand to reap as much as $18.4 billion.

For a company that was born in a Harvard dormitory and went on to reimagine online communication, the stock sale means more money to build on the features and services it offers users. It means an infusion of money to hire the best engineers to work at its sprawling Menlo Park, California, headquarters, or in New York City, where it opened an engineering office last year.

And it means early investors, who took a chance seeding the young social network with start-up funds six, seven and eight years ago, can reap big rewards. Peter Thiel, the venture capitalist who sits on Facebook’s board of directors, invested $500,000 in the company in 2004. He’s selling nearly 17 million of his shares in the IPO, which means he’ll get some $640 million. He will hold on to about 28 million shares, worth $1.06 billion.

The offering values Facebook, whose 2011 revenue was $3.7 billion, at as much as $104 billion. The sky-high valuation has its skeptics, who worry about signs of a slowdown and Facebook’s ability to grow in the mobile space when it was created with desktop computers in mind. Rival Google Inc., whose revenue stood at $38 billion last year, has a market capitalization of $207 billion.

“There seems to be somewhat of a hype around the stock offering,” says Gartner analyst Brian Blau.

That may be an understatement.

Facebook’s IPO dominated media coverage in the weeks and days leading up to the event. CEO Mark Zuckerberg’s hoodie made headlines when he wore it to a meeting with investors as did General Motors’ decision this week to stop advertising on the site – and rival Ford’s affirmation that its Facebook ads have been effective.

There are more than a few reasons for the exuberance. First, there’s Facebook’s sheer size and high profile. The company grew from a college-only social network to an Internet phenomenon embraced by legions of people, from teenagers to grandmothers to pro-democracy activists in the Middle East.

Secondly, it’s personal.

“It’s probably one of the first times there has been an IPO where everyone sort of has a stake in the outcome,” Blau says. While most Facebook users won’t see a penny from the offering, they are all intimately familiar with the company.

And then there’s Zuckerberg, who turned 28 on Monday. He has emerged as the latest in a lineage of Silicon Valley prodigies who are alternately hailed for pushing the world in new directions and reviled for overstepping their bounds. He counted the late Apple CEO Steve Jobs among his mentors, and he became one of the world’s youngest billionaires _ at least on paper _ well before Facebook went public. A dramatized and less-than-flattering version of Facebook’s founding was the subject of a Hollywood movie that won three Academy Awards last year, propelling Zuckerberg even further into the public spotlight.

Though Zuckerberg is selling about 30 million shares, he will remain Facebook’s largest shareholder. Even after the IPO, he will own 503.6 million shares, or 32 percent of Facebook’s total shares. At the $38 share price, his stake in the company is worth $19.1 billion. Zuckerberg will control the company with 56 percent of its voting stock as a result of agreements he has with other shareholders who promise to vote his way.

The set-up helps to ensure that he and other executives keep control as the demands of Wall Street for short-term returns exert new pressures on the company.

True to form, Zuckerberg and Facebook’s engineers are ringing in the IPO on their own terms. The company is holding an overnight “hackathon” Thursday, where engineers stay up writing programming code to come up with new features for the site. On Friday morning, Zuckerberg will ring the Nasdaq opening bell from Facebook’s headquarters a continent away. (BARBARA ORTUTAY)

By Miyoung Kim

SEOUL |
Thu May 17, 2012 3:38am EDT

SEOUL (Reuters) – Apple Inc will struggle to cut its reliance on rival Samsung Electronics for component supplies, analysts and industry sources said on Thursday, despite speculation that it has begun reducing its use of Samsung memory chips.

Samsung has lost 6 percent of its value, or $11 billion, since a Taiwanese trade news outlet reported on Wednesday that Apple had placed big new orders with Japanese chipmaker Elpida for dynamic random access memory (DRAM) chips.

The report has stoked concerns among Samsung investors that Apple wants to help turn the struggling Elpida, now in bankruptcy protection, into a much bigger supplier to the U.S. tech giant, partly at the expense of South Korea’s Samsung.

Apple is Samsung’s largest customer, buying chips and displays, but the pair are also bitter rivals for the sale of smartphones and tablets and are engaged in a patent war.

But tech analysts in the United States and South Korea said they doubted the report by Taiwan’s DigiTimes, if confirmed, would signal major damage for Samsung and for its supplier links to Apple, despite the fierce selloff in Samsung shares.

“Apple has been diversifying its suppliers and the deal with Elpida had no major impact on other major suppliers as Elpida’s share of the global mobile DRAM market is quite small,” said one source with direct knowledge of Elpida’s sales breakdown.

The source said Elpida was already selling more than half of its mobile DRAM chips to Apple – an estimate supported by Merrill Lynch – and that its current production offered limited scope in the short term to take market share from Samsung, which controls more than half of the global mobile DRAM market.

“(There’s) nothing new in our view given Elpida usually assigns about 40-60 percent of its mobile DRAM capacity for Apple according to our channel checks,” Merrill Lynch analyst Simon Woo said.

Lee Sun-tae, of NH Investment Securities, agreed: “The market is overreacting to the news. Mobile DRAM accounts for only 10 percent of Samsung’s overall operating profit …”

DIVERSIFYING, NOT DITCHING: ANALYSTS

U.S.-based Micron Technology Corp is in talks to acquire Elpida’s business as the Japanese firm tries to restructure after tough market conditions and global competition drove it into bankruptcy protection.

Apple did not response to queries on the report and Micron declined to comment. Samsung and Elpida’s court-appointed trustees also declined to comment.

Apple has been facing supply constraints, with iPhone sales soaring to 35.1 million last quarter, leading some analysts to conclude that the California-based company is more worried about a free-flowing supply chain than reliance on Samsung.

“No company wants to have just one supplier. Just on that basis I think they’re probably just shifting the (DRAM) balance, looking for equilibrium between two or three suppliers,” said Monika Garg, an analyst at Pacific Crest.

“I don’t think Apple would want to spoil their relationship with Samsung. They are their foundry.”

A major shift away from Samsung could also be complicated and costly for Apple, analysts said, adding that Samsung currently supplied Apple with high-end DRAM chips which were faster and more power-efficient than Elpida’s main chips.

Samsung and fellow South Korean chipmaker SK hynix, whose shares were also hit on Wednesday by the Apple-Elpida news, make chips with transistors that are 20 to 30 nanometers apart, giving them superior performance to Elpida’s 40-nanometer class, according to analysts.

A nanometer is one millionth of a millimeter.

The mobile DRAM market is set to grow rapidly due to booming smartphone and tablet sales. SK hynix has around 22 percent of the market with Elpida on about 16 percent, analysts estimate.

Shares in Samsung were trading up 0.3 percent by 0450 GMT, after falling as much as 2.4 percent. Shares in SK hynix rallied sharply from Wednesday’s selloff, up 6 percent.

(Additional reporting by Noel Randewich in SAN FRANCISCO and Mari Saito in TOKYO; Editing by Mark Bendeich)

Article source: http://feeds.reuters.com/~r/reuters/technologyNews/~3/5cPtapaVtKo/us-elpida-idUSBRE84G01E20120517