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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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?

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.

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 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.

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.

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.

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