Nokia’s Debt Downgraded To Junk
Another bad day for Nokia as the rating is cut and shares slump
A third major credit rating agency has downgraded the struggling mobile phone manufacturer today. Fitch Ratings has lowered the credit rating for Nokia from BBB- to BB+. This marks Nokia’s debt as non-investment grade, or “junk”.
Nokia has defended itself, saying it is still in the process of transition from old Symbian-powered mobile phones to the new Lumia handsets. The company has pledged to continue cutting costs, and reminded the markets that it still has plenty of cash left to support itself.
Bleeding money
This week, Nokia announced a €1.34 Billion quarterly loss, and earlier this month, the company issued a profit warning for its devices and services division, blaming strong competition and weak sales of the Lumia smartphones.
Last week, the company was downgraded by rating agency Moody’s, from Baa2 to Baa3 with a negative outlook. Standard & Poor’s made a similar downgrade last month.
After today’s downgrade, Nokia’s shares fell 3 percent to a new 15-year low of €2.63 (£1.63).
Just a decade ago, Fitch rated Nokia’s debt A+. Now, the agency has said the disastrous rating could be lowered further unless the Finnish business showed improvements over the second half of 2012 and in 2013.
“Given the potential headwinds facing the company, Fitch is currently not convinced that Nokia can attain this over the course of 18 months,” it said in a statement obtained by Reuters.
Nokia has been quick to respond. “We are quickly taking action to position Nokia for future growth and success. Nokia will continue to increase its focus on lowering the company’s cost structure, improving cash flow and maintaining a strong financial position,” said Timo Ihamuotila, Nokia’s executive vice president and CFO.
Nokia’s still has plenty of cash reserves. As of March 31, 2012, it had gross cash balances of €9.8 billion (£6b), and a net cash position of €4.9 billion (£3b). However, the strong competition from Apple, Samsung and Google, together with the uneasy transition to Microsoft’s mobile platform means the future of the company is uncertain.
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