Nokia credit rating downgraded again amid cash concerns

By most accounts, Nokia is doing a fine job of creating a portfolio of strong products, from the ultra-affordable $20 Nokia 105, to the well-featured ‘semi-smart’ Asha range for developing markets, all the way up to its expansive range of Lumia smartphones. Its Windows Phone handsets continue to impress, with the most recent addition – the Lumia 925 – scoring highly in independent reviews across the world.

But Nokia continues to struggle in the face of aggressive competition across its entire range, from the high-end iPhones to the endless torrents of cheap Android handsets flooding the market at the lower end. The pressure that the company is facing in its device business is a major worry for investors and lenders.

Today, leading ratings agency Standard & Poor’s (S&P) downgraded Nokia amid concerns over the company’s financial health, and in particular, its cash reserves. Earlier this week, the Finnish company announced plans to buy out its partner in the Nokia-Siemens Networks (NSN) joint venture for $2.2bn, a move that was broadly supported by the markets. But S&P believes that that move, coupled with the continued difficulties in Nokia’s device business, could put considerable strain on the company’s cash pile. Reuters quotes S&P as saying: “We now anticipate that Nokia’s net cash could be as low as €1.3bn EUR ($1.67bn USD / £1.12bn GBP) at the end of 2013.”

S&P has consequently downgraded Nokia’s rating from BB- to B+; the agency defines this rating as “more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments”. The situation, then, is not dire, but it is precarious.

Nokia’s credit rating has been on a downward trajectory since it embraced Windows Phone in early 2011. By the end of March, just a few weeks after CEO Stephen Elop announced plans to abandon the "burning platform" of Symbian in favour of Windows Phone, Nokia’s share price had taken a beating, and S&P downgraded Nokia for the first time in thirteen years.

At that time, S&P said: “We expect that Nokia’s smartphone portfolio will make further significant market share losses during 2011 and 2012, until it has completed its adoption of Microsoft’s Windows Phone software as its new primary software platform for smartphones.” The lack of significant progress in translating strong product into high-volume and/or high-margin sales has continued to take its toll on Nokia’s share price, which is now under $4, down from a peak of $11.73, on the day before Elop's Windows Phone announcement was made.

Unsurprisingly, Nokia remains defiant. Timo Ihamuotila, the company’s executive vice-president and chief financial officer, issued a statement after today’s S&P downgrade:

With a strong positive gross and net cash position, Nokia was able to take advantage of an opportunity to fully own Nokia Siemens Networks and, we believe, create meaningful value for Nokia shareholders. We will continue to prudently manage our cash resources post-transaction.”


The company also notes that it has access to undrawn credit facilities totalling $2.25bn over the next couple of years which can be tapped if the need arises. Gradual improvements in Lumia handset sales also mean that the company will rely less on “platform support payments” for Windows Phone over the next few years, which have so far seen Microsoft pay Nokia $250m every quarter to help the manufacturer to refocus its entire smartphone strategy around Microsoft’s mobile OS.

But despite these glimmers of positivity, the downgrade places Nokia in an increasingly dangerous situation. While it still has a sizeable cash pile, and accessible (albeit limited) credit, the cost of additional borrowing will likely be higher as a result of its poorer credit rating, increasing the cost of doing business. For a company that’s being criticised (and punished) for the possibility of burning through its cash too quickly – coupled with the ongoing uncertainty over how its devices will fair against greater competition going forward – that’s an unwelcome prospect.

One has to wonder just how much worse things can get for Nokia before it hits the fan – or, perhaps, before the company gives up on its device business entirely. A recent report indicated that Microsoft held advanced talks last month with Nokia to negotiate terms for acquiring its handset division, but that these discussions apparently collapsed over a failure to agree on price. Nokia's renewed interest in network infrastructure through the NSN acquisition could be the first step towards offloading the device business completely. Time will tell. 

One crumb of comfort to console Nokia: however bad things are, at least they’re not as bad as they are at BlackBerry

Sources: Nokia / Reuters / Standard & Poor's

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58 Comments

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What's with the stupid pot shot at Android? The most popular Android devices are high end phones like the Galaxy S4 not the low end devices.

Stalls? Every time one of those market share charts come out, WP shows an increase in nearly every market. So honestly that makes no sense. /shrug

For the US yes.. You do know that there's more to this globe then the US right? (and Thank God there is) There's quite a few big markets WP is closing in on double digits.

Raa said,
Except the last market "analysis" just showed that it's dropped slightly.

that's called normal market fluctuations. that report was for the month of may, in the US only, and its installed base,not sales share. Its also a time when Samsung and htc released their flagships. that's actually impressive they held their own. of course,you wouldn't know how to interpret this data,and I don't expect android/iphone fans to know how either.

This article is almost complete fiction or just total misunderstanding of the situation. The credit rating is due to their big risk in the Siemems AG acquisition which is actually an indicator the management thinks the company is doing well. You don't go buy stuff if you think cash will be tight in the near future.

Exactly! If nothing else, this makes me optimistic about their upcoming earnings report in 2 weeks. They are the board of directors.. they know if they are doing ****ty or not, and that has presumably counted in the acquisition decision.

Cannot wait until security issues pop up with WP. Just like they have, and are becoming more common, with Apple products.

Besides, this is not about Android or another OS...its about Nokia, a hardware company.

techbeck said,
Cannot wait until security issues pop up with WP. Just like they have, and are becoming more common, with Apple products.

Thanks for that glimpse into the possible future of WP there techbeck, most illuminating. Now, lets get back to current events and reality, where Android IS getting riddled with malware.

TCLN Ryster said,
Now, lets get back to current events and reality, where Android IS getting riddled with malware.

Yup, I keep hearing that...reading post and reports. But yet, I have not run into any since I started using the first Android phone, the G1, and neither has the dozens of members of my family. Novices as well. And dont confuse malware with security flaws which what my response was towards.

TCLN Ryster said,

Now, lets get back to current events and reality, where Android IS getting riddled with malware.

You mean, where users continue to accept every priviledge "My hot pic.apk" asks for?

Dot Matrix said,
Quick! Switch to Android! I hear its security features are top notch!

I hear HTC is doing great with maldroid,you know, being outsold by nokia and the failure called Windows Phone and all.

shhhhhhhhhhhhh

This is not news to me. Did Nokia really believe Windows Phone 8 would be its savior? I am also noticing comments that Nokia is doing fine in non US markets. That's fine and dandy but they ultimately need to win the hearts of Americans, not only for their sake but for Microsofts.

JHBrown said,
... but they ultimately need to win the hearts of Americans...

Why do they? Why is America the "holy grail" for Nokia? Sure it's desirable, but there are more people living outside of America, than inside... you know. Contrary to popular belief amongst Americans, the good ol' US of A is not the centre of the universe.

JHBrown said,
but they ultimately need to win the hearts of Americans, not only for their sake but for Microsofts.

Why indeed?! In fact I would be willing to say that is Nokia were to forget about the US and write if off as a lost cause they'd probably be in a better position. The US mobile market is so seriously broken and controlled by the carriers it's not even funny.

Nokia failed. End of story. There are rumors that they are looking to sell the mobile phone branch ... The stock is failing again.

DaveBG said,
Nokia failed. End of story. There are rumors that they are looking to sell the mobile phone branch ... The stock is failing again.

The stock is actually up over 3.5% today.

GP007 said,
The stock is actually up over 3.5% today.

He probably doesn't know how to look up Nokia's stock symbol.

Enron said,

He probably doesn't know how to look up Nokia's stock symbol.

hes probably looking at AAPL by mistake.

Enron said,

He probably doesn't know how to look up Nokia's stock symbol.

Nokia Corporation (ADR)
NYSE: NOK - 10 Jul 7:58pm ET
4.14-0.08‎ (-1.90%‎)

OUCH!

DaveBG said,

Nokia Corporation (ADR)
NYSE: NOK - 10 Jul 7:58pm ET
4.14-0.08‎ (-1.90%‎)

OUCH!

I don't know if you're trying to be serious with this or not but did you wait the past 5 days since the original post for a point where Nokias stock actually did go down to come back and post this? Really?

it looks like peeps really want to see Nokia fail so the peeps that's said " Nokia should of gone with android blah blah blah " I mean I don't want to see nokia fail or else there will only be 2 smart phones choice and to be honest we all don't want that ...sometimes I wish peeps wouldn't bring down a company just because they say it is now.... wait for the future and see what happens before saying what you are saying now

tanybeen said,
In other news, Nokia's stock price since 1 year ago is up precisely 99.5%.

And how is it compared to the day before the Elop announcement of the switch?........

Fritzly said,

And how is it compared to the day before the Elop announcement of the switch?........

Another stupid comment! So are we playing that game now? How about we talked about Apple's stock price then, 6 months ago? Apple is surely dying, right? My point is that Nokia is not in the dire situation that this article wants us to believe.

Another example of how biased people are against Microsoft, and by extension against everyone who works with them: When the info that Nokia's board was flying to Finland a few weeks ago was out, everybody was speculating that they were going to sell Nokia. Instead, they did a multi-billion dollar acquisition. And now people see that acquisition as somehow being a bad thing, and an exit strategy from the smartphone business? This is nuts!

tanybeen said,

Another stupid comment! So are we playing that game now? How about we talked about Apple's stock price then, 6 months ago? Apple is surely dying, right? My point is that Nokia is not in the dire situation that this article wants us to believe.

Another example of how biased people are against Microsoft, and by extension against everyone who works with them: When the info that Nokia's board was flying to Finland a few weeks ago was out, everybody was speculating that they were going to sell Nokia. Instead, they did a multi-billion dollar acquisition. And now people see that acquisition as somehow being a bad thing, and an exit strategy from the smartphone business? This is nuts!

The only stupid thing here is the way you arbitrarily pick up a well delimited period of time in an attempt to support your statement.
I never stated that the acquisition would be a bad move; on the contrary, knowing that the 50% partnership generates more than 40% of Nokia overall profits such acquisition would only boost the company profits. On the other hand the same operation will unquestionably add strain to Nokia cash flow.
it is not difficult to understand, is it?

Fritzly said,

And how is it compared to the day before the Elop announcement of the switch?........

The price didn't go down because of the switch to Windows Phone. The price went down because Symbian devices were getting destroyed by the iPhone, and later Android. They switched so they could compete.

Enron said,

The price didn't go down because of the switch to Windows Phone. The price went down because Symbian devices were getting destroyed by the iPhone, and later Android. They switched so they could compete.
Clear evidence of what I stated above is the fact that just before Elop announcement the Nokia reached

While I do not necessarily disagree, at least not completely, with your analysis it is also unquestionable that the depreciation of the stock value is directly correlated to the lower than expected/anticipated volume of sales of WP devices so far.
if you take a quick look at the chart

http://www.nasdaq.com/symbol/n...mp;index=&drilldown=off

you will note that the actual value of Nokia shares more or less 1/3 of what it was around the time of the "switch" announcement.

Edited by Fritzly, Jul 5 2013, 9:37pm :

"Nokia's renewed interest in network infrastructure through the NSN acquisition could be the first step towards offloading the device business completely.". Really??!!

efjay said,
"Nokia's renewed interest in network infrastructure through the NSN acquisition could be the first step towards offloading the device business completely.". Really??!!

The NSN partnership generated more than 40% of Nokia profits therefore the acquisition of 100% of it will substantially increase that percentage.

Andy Weird
Nokia's credit rating has again been downgraded amid concerns that the company could burn through much of its cash reserves by the end of this year, as its Windows Phone strategy stalls.

what the hell is that supposed to mean???

vcfan said,

what the hell is that supposed to mean???

We get it that you are MS fanboy so you don't see the obvious. It means Nokia's bet on Windows phone did not well played out. When WP has meager 3% market cap and declining then that is cause of concern. Now I know you won't believe that WP share is not growing good enough but I will leave it for another day.

tanybeen said,
Sales are approaching 10% in some European countries, and are at 7% in EU5

Which is terrible when you consider that Windows Mobile had 17% market share back in 2006 and was projected to have 29% market share by 2010.

Which is terrible when you consider that Windows Mobile had 17% market share back in 2006 and was projected to have 29% market share by 2010.

And then everything changed when the iPhone-nation attacked.

What is this nonsense? Predicted by who? The same tools that have predicted that WP will be at the same same level as the iPhone by 2015? Predictions are just that: predictions. In-between 2006 and 2010, the iPhone happened! Point is that Nokia is in a much better condition today, than it was 18 months ago. I'm sure the people who got stock last year at $1.75 and have the stock today at over $4, will feel like that. Whether it would had been in a better position going with Android or not, is just guessing, and a question we will never find out the answer to.

Auditor said,

We get it that you are MS fanboy so you don't see the obvious. It means Nokia's bet on Windows phone did not well played out. When WP has meager 3% market cap and declining then that is cause of concern. Now I know you won't believe that WP share is not growing good enough but I will leave it for another day.

Market share is not growing good enough in the US where Nokia has never done well anyways. But the US market although one of the largest does not cover the whole world as many people like to conclude in their comments and predictions. People worldwide are not suck that far up Apple's ass for one so WP is doing a bit better in these regions (EU, etc)

tanybeen said,
What is this nonsense? Predicted by who? The same tools that have predicted that WP will be at the same same level as the iPhone by 2015? Predictions are just that: predictions. In-between 2006 and 2010, the iPhone happened!

But that's exactly the point. Nokia failed to innovate and was overtaken by newcomers like Apple and Samsung. It had a dominant position in the market and it squandered it.

tanybeen said,
Point is that Nokia is in a much better condition today, than it was 18 months ago.

By what metric? Nokia's marketshare has continued to decline, its share price has dropped dramatically and it has been burning through cash, while being downgraded by most credit rating agencies. While its products are certainly more trendy than they once were the company is actually in very poor shape when compared to 18-months ago.

theyarecomingforyou said,

But that's exactly the point. Nokia failed to innovate and was overtaken by newcomers like Apple and Samsung. It had a dominant position in the market and it squandered it.

By what metric? Nokia's marketshare has continued to decline, its share price has dropped dramatically and it has been burning through cash, while being downgraded by most credit rating agencies. While its products are certainly more trendy than they once were the company is actually in very poor shape when compared to 18-months ago.

It's smartphone shipments are growing and it's in less of a negative financial position than it was 18 months ago. Look at how much cash it was losing then and how close it is to being in the black now. Heck, it actually posted a small profit in Q4 of 2012 iirc? Lumia sales are growing where before Symbian sales were doing nothing but tanking. NSN is also once again making money when before it was also doing poorly. So no, I don't see it as being in a worse shape now than it was 18 months ago. It's stock price has also been steadily going up for the past year, so that's one metric you can look at. Sure today it's rating was cut, but not because of handset sales but because it's going to spend a billion to buy all of NSN.

Auditor said,

We get it that you are MS fanboy so you don't see the obvious. It means Nokia's bet on Windows phone did not well played out. When WP has meager 3% market cap and declining then that is cause of concern. Now I know you won't believe that WP share is not growing good enough but I will leave it for another day.

marketshare declining? where? windows phone is the fastest growing mobile OS,with 6-7% sales share in the US,6-8% in Europe, more than 10% in various markets around the world,and growing. We'll also see huge gains for last quarter with nokia releasing the 520,720,which recent statistics show have sold millions alone in their first 2 months of release.

and its clear you cant distinguish the meaning between quarterly sales marketshare data from installed base data for one month in one country during a time multiple competitors released their highly anticipated flagships,and nokias installed base share declined only 0.2% while adding almost 100,000 subscribers.

But of course, you will believe what you want to believe, not what is happening in reality,but please don't try to feed this BS to the rest of us.

vcfan said,
marketshare declining? where? windows phone is the fastest growing mobile OS

Think there was a report several days ago saying WP went down .2 percent. May not be declining everywhere, but it did the last quarter in the US. But how these things go, I am sure it will be up again next quarter. Stats fluctuate all the time. And the OP is really about hardware (Nokia being a hardware company), and not the OS.

Edited by techbeck, Jul 5 2013, 7:04pm :

GP007 said,
It's smartphone shipments are growing and it's in less of a negative financial position than it was 18 months ago. Look at how much cash it was losing then and how close it is to being in the black now. Heck, it actually posted a small profit in Q4 of 2012 iirc?

Nokia's credit rating has been repeatedly downgraded due to its dwindling cash reserve. Heck, that's even highlighted in this very article. You don't get downgraded because you're in a better financial position. The only reason that Nokia posted a profit is because it scrapped the dividend payout, the first time it has done so in 20 years.

Nokia is struggling.

techbeck said,

Think there was a report several days ago saying WP went down .2 percent. May not be declining everywhere, but it did the last quarter in the US. But how these things go, I am sure it will be up again next quarter. Stats fluctuate all the time. And the OP is really about hardware (Nokia being a hardware company), and not the OS.

I think you're talking about the comScore overall US smartphone userbase numbers, those when down 0.2% not 2% and it's because WP isn't growing as fast as the overall smartphone userbase in the US is growing. If you dive into the numbers more you'll see that while it's overall % share went from 3.2% in February to 3% in May that the userbase of smartphone owners in the US has grown each month since then. That 3% in May makes up more users than the 3.2% back in February did. The userbase isn't static, it's growing. The only way to post a solid positive growth % is if you add more users than how much the user base is growing. I believe comscore said that for the month of May the overall smartphone userbase in the US grew 6.4% from April. If you grow your userbase at a lower rate than that then chances are you're going to end up with a lower overall %.

It's better to look at solid user numbers or when talking about sales units and not just %. vcfan is right, if you look at the data from April and the newest data from May, comscore have WP at 3% for both, but the overall user numbers between April and May are different, May has more users of smartphones than April has. So In the end 3% for April doesn't equal 3% in May when you break it down into an actual number. Others have done so and shown that while WP has the same % it's added users from April to May, just not a lot of them.

techbeck said,

Think there was a report several days ago saying WP went down .2 percent. May not be declining everywhere, but it did the last quarter in the US. But how these things go, I am sure it will be up again next quarter. Stats fluctuate all the time. And the OP is really about hardware (Nokia being a hardware company), and not the OS.

that isn't sales marketshare, its installed base,and it was for the month of may only, in the U.S,during the release period of flagships like gs4 and htcone. that doesn't mean wp is declining at all,which is what he was trying to make it seem.

Auditor said,

We get it that you are MS fanboy

We get you do not have a clue what you are talking about.. Sounds like you would be a perfect fit for a job as an analyst. If anyone notices These 'reports'start to come out every time Nokia stock gets to around $4 and it would appear the powers that be want to keep it below that. Fact is the stock has come UP from $1.67 a year ago to hovering around the $4 mark.

Fact is the NSN acquisition in fact is a perfect tool to piggy back device sales. I am fairly certain we will see these analyst 'experts' be wrong yet again. They have been every single time so far..

paulheu said,
If anyone notices These 'reports'start to come out every time Nokia stock gets to around $4 and it would appear the powers that be want to keep it below that.

So there's a conspiracy by analysts to keep Nokia's share price down? There you go, folks. Mystery solved.

theyarecomingforyou said,

So there's a conspiracy by analysts to keep Nokia's share price down? There you go, folks. Mystery solved.

I wouldn't call it a conspiracy but it doesn't take much to "leak" information or start a bogus rumor that can effect the stock price in a positive or negative way.

theyarecomingforyou said,

So there's a conspiracy by analysts to keep Nokia's share price down? There you go, folks. Mystery solved.

hey check out who owns the majority of the nokia stock. up until a month ago, goldman sachs were the top holders,and for the last few years,theyve been sell rating the stock,and gobbling up all the stock every single time. they sell rate,buy more,stock goes up. sell rate,buy more,stock goes up

http://www.nasdaq.com/symbol/nok/ownership-summary

just recently dodge & cox came out in support of nokia,and bought a huge amount of stock and out owned goldman sachs in this stock. if you don't believe me,watch all their reports,and go see them going and buying all the stock. theres no conspiracy,this is fact. go grab the reports and see what is happening.

Major Plonquer said,

You shouldn't confuse market share in the USA with market share globally. It makes you sound like an utter dikhead.

US is one of the biggest market in the world so yeah USA does matter. Are you referring to growth of WP in African continent where the margin will be so thin. You found every excuse in the book to defend something indefensible. It makes you sound like fanboy and dumb@$$.

Auditor said,

US is one of the biggest market in the world so yeah USA does matter.

On a glbal scale the US market is hardly relevant. As has been proven many times over companies can be hugely successful with 0 presence in the US. The problem is that many (in the US) think they are important since the US market is so big, yet on a worldwide scale it's irrelevant really. The EU market as a whole would be a larger one for starters.

If the bozos in Brussels were to figure out how to build a solid EU economic market without trying to turn it into the United States Of Europe the US would have some serious economic issue on top of the ones they are facing internally.

Credit Rating was lowered because of the loan they took out, however their stock is finally over 4.00 so the market seems to see value.