Nokia’s Junk Debt Rating Dropped Lower by S&P on Losses
Nokia Oyj (NOK1V)’s debt, already at junk status at the three biggest rating companies, was cut two additional steps by Standard & Poor’s as the unprofitable mobile-phone maker loses market share and burns cash.
The long-term rating was cut to BB- from BB+, three levels below investment grade, Standard & Poor’s said today in a statement. The outlook for Espoo, Finland-based Nokia’s ratings is negative, Standard & Poor’s said.
Nokia has announced more than 20,000 job cuts and shuttered production and research sites as it tries to offset a continuing decline in revenue. Chief Executive Officer Stephen Elop is relying on the Lumia smartphone running Microsoft Corp. (MSFT) software to halt gains by Apple Inc. (AAPL)’s iPhone and handsets using Google Inc. (GOOG)’s Android software.
“The rating actions reflect a downward revision of our estimates of revenues and profitability for Nokia’s smartphone operations in 2012 and 2013,” Standard & Poor’s said.
Nokia’s net cash may drop to less than 3 billion euros ($3.7 billion) by the end of the year from 4.2 billion euros at the end of June, the ratings company said. Nokia has debt of 5.2 billion euros and lost 2.34 billion euros in the first half of this year.
Moody’s Investors Service and Fitch Ratings reduced Nokia last month.
Nokia said the impact of the rating downgrade is “limited.” In addition to having net cash, Nokia said it has access to a 1.5 billion-euro revolving credit facility without financial covenants until 2016.
“As we continue our transition, we are applying a strong focus on cash conservation while simultaneously reducing our operating costs and making our operating model stronger and more agile,” Timo Ihamuotila, Nokia’s chief financial officer, said in a separate statement.
Nokia shares rose 3.4 percent to 2.08 euros at 3:55 p.m. Helsinki time. They’ve declined 47 percent this year through yesterday.
The company will continue to post losses as its volumes are declining and it is forced to reduce prices to defend its market share, Standard & Poor’s said. The average selling price Nokia received for each of its flagship Lumia phones fell 15 percent in the second quarter from the previous three months and will drop further “in the coming quarters,” Standard & Poor’s said.
Nokia is seeking a sales boost from new Lumia handsets based on the Windows Phone 8 operating system. The company will introduce devices based on the program as soon as next month, a person familiar with the matter said this month.
“We expect Nokia to launch new models, notably those based on the Windows Phone 8 operating system, but we think it could take some time before this can help stabilize revenues,” Standard & Poor’s said.
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