Ratings agency Moody's has cut Nokia's debt rating down to one level above "junk" status on the grounds that poor Q1 sales resulted in a 35 per cent collapse in quarterly revenue that unlikely to be recovered. Martyn Warwick reports.
The threat is, of course, that if Nokia's sales continue to decline Moody's will further downgrade the company to full "junk" status, (with all other equally unaccountable, unelected ratings agencies following suit on their usual sheep-ike way) thus making the Finnish company's recovery all the less likely.
With lambing season in full swing, Moody's now has Nokia at Baa2, a subtle point down distinction from the Baa3 and one that puts Nokia shares on the naughty step of investment grade stock.
The ratings agency says its downgrade is based on several factors including Nokia losing its market share of low-cost basic handsets in developing markets whilst, simultaneously suffering the same fate in the smartphone sector in the developed markets.
The markdown came hard on the heels of Nokia admitting that Q1 performance was bad and that Q2 is unlikely to be any better.
A statement from the ratings agency says, "Moody's believes that the structural challenges facing Nokia's mobile phones segment may not be easy to address, such as the market share gains recorded by makers of very low-end phones or new phone promotions by Chinese carriers.
This precipitous decline is of particular concern considering that Nokia's mobile phones segment was still the core income generator for the Nokia group in 2011, when it contributed 1.5 billion euros (US$1.9 billion) to the group's operating profit of 1.8 billion euros".
Nokia's response was subdued and low-key with the company stressing that it is sitting on a cash pile of €10 billion, has €5 billion in other assets, is cutting costs and also re-organising itself (again).
Nokia's CFO, Timo Ihamuotila, said, "Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position."
In passing itt is probably also worth pointing out that despite it's pronouncements from on-high, Moody's track-record is far from perfect. Back in the early years of the century, and in the face of plenty of evidence to the contrary, the agency persisted in rating sub-prime debt as investment grade stock.
Meanwhile, as Nokia suffers, its recovery is almost entirely in the hands of Microsoft and the Windows Phone with which the Finnish manufacturer's fate is intimately intertwined. Meanwhile, Android-enabled smartphones continue to go from strength to strength.
Nokia will publish full Q1 financial figures on Thursday even as Samsung of Korea is poised to knock the Finnish company off the perch it has occupied for the last 14 years as the world's biggest maker of mobile handsets. Nokia's figures will be dire. Samsung publishes its update on April 29. The pall of Nordic gloom over Espoo will get even darker on that date.
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