Last updated: April 16, 2012 5:04 pm

Nokia rating cut to one level above ‘junk’

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Nokia’s debt has been downgraded to one notch above “junk” status by Moody’s, the credit rating agency, following an unexpected profit warning last week by the Finnish handset maker.

Moody’s said it was cutting Nokia’s senior debt ratings from Baa2 to Baa3 with a negative outlook because of the “severe decline” in mobile phone sales and revenue in the first quarter.

The agency said in a statement: “While volatility by quarters is not uncommon, Moody’s believes that the structural challenges facing Nokia’s mobile phones segment may not be easy to address.”

Nokia avoided being downgraded all the way to “junk” status, however, despite speculation that the soaring cost of insuring against the company’s debt last week implied a rating below investment grade.

Timo Ihamuotila, Nokia’s executive vice-president and chief financial officer, said: “Nokia is quickly taking action. Nokia will continue to increase its focus on lowering the company’s cost structure, improving cash flow and maintaining a strong financial position.”

The Finnish group warned last week that it would make a loss on its phone business in the first and second quarters, sending shares in the company down 25 per cent over the week to their lowest point since 1996.

The company said that tough competition had caused sales in its low-end feature phone division to fall much faster than expected. Sales in this division sank 35 per cent to €2.3bn in the first quarter.

It added that early sales of its new high-end Windows phones, seen as crucial to mitigate declines in its moribund Symbian line-up, had come in well below analysts’ expectations, selling just 2m units in the first quarter.

The news, which comes ahead of first-quarter results on Thursday, was another setback for the group, which is struggling to compete with Apple’s iPhone, devices using Google’s Android operating system and low-end Chinese manufacturers.

Moody’s said: “Nokia’s transition in its smart devices from Symbian-based phones to the Windows-based Lumia devices is proving more challenging than expected given that sales of Symbian-based devices are falling off very quickly while Lumia sales are only ramping up slowly.”

Nokia said in its warning last week that it was “quickly taking action” to address the problems highlighted by the profit warning, focusing on increasing sales of its Lumia handset and lowering the company’s cost structure. “We are continuing to increase the clock speed of the company,” Stephen Elop, chief executive, said.

“Our disappointing devices and services first-quarter 2012 financial results and outlook for the second quarter of 2012 illustrates that our devices and services business continues to be in the midst of transition,” Mr Elop added.

The profit warning has ramped up pressure on Mr Elop, who last year likened the company to an oil worker on a “burning platform”. His solution was to launch an ambitious strategy tethering the company’s smartphone future to a partnership with Microsoft.

Nokia took a second knock last week when it announced that there was a software bug in its new flagship Lumia 900 model, which was launched the previous Sunday. The phone represents the company’s big hope of breaking back into the US market. The company has said that an update is available to fix the problem.

Shares in Nokia, which fell sharply in the wake of the profit warning, fell 2.16 per cent to €3 in Helsinki.

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE