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Nokia Debt Rating Lowered One Step by Moody’s, Following S&P

Nokia Oyj, the world’s biggest maker of mobile phones, had its debt rating cut by Moody’s Investors Service, which cited the Finnish company’s “weakened market position” and lower profit margins.

The long-term rating was reduced one step to A3, the seventh-highest of 10 investment-grade ratings, with a negative outlook, Moody’s said today. The move followed Standard & Poor’s cut to A- on March 30. Nokia had about 5.3 billion euros ($7.6 billion) in long-term debt at the end of last year.

“The rating downgrade primarily reflects Nokia’s weakened market position in its core business, mobile devices, which has reduced the company’s margins and funds from operations,” Wolfgang Draack, Moody’s senior vice president and lead analyst for Nokia, said in the statement.

Chief Executive Officer Stephen Elop, 47, said Feb. 11 that Nokia would adopt Microsoft Corp.’s Windows Phone 7 as its main operating system, tapering off product lines based on its Symbian software. The CEO now needs to help Microsoft attract developers to Windows Phone 7 while trying to keep them loyal to Symbian to keep up sales.

Rival Google Inc.’s Android will displace Symbian this year as the top-selling system used in handsets that enable users to browse the Internet and download movies and songs, while Microsoft will have a share of about 5.5 percent, International Data Corp. forecast last month. Symbian’s share may fall to 0.2 percent in 2015 from 20.9 percent this year, according to the Framingham, Massachusetts-based researcher.

Smartphone Share

Nokia’s share of smartphone sales by volume declined to 30.8 percent in the fourth quarter from 50.8 percent when Apple Inc. began shipping its iPhone in 2007, according to Gartner Inc. figures. Its overall share of the mobile market tumbled to about 27 percent from 36.7 percent in the same period.

Moody’s said today that rating pressure may increase if Nokia’s annual device sales volume were to fall below 340 million units, and smartphones volume to less than 80 million units, and if the company were to start consuming “material amounts of cash” over a cumulative 12-month period. The rating agency placed Nokia’s debt rating under review for a possible downgrade on Jan. 28.

HTC Corp., Asia’s second-largest maker of smartphones, passed Nokia’s market value as consumers switch to more powerful, feature-rich phones at the expense of the Finnish maker’s simpler models.

The 5.3 percent gain of HTC shares in Taipei trading yesterday took the Taoyuan, Taiwan-based company’s market value to $33.8 billion, exceeding Nokia’s $33.6 billion as of yesterday. HTC shares closed unchanged today. Nokia lost 0.2 percent to 6.25 euros at 12:17 p.m. in Helsinki.

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