Nokia Corp. (NYSE: NOK) is going deeper and deeper into junk bond territory. Days after it announced another set of relatively disappointing quarterly results, two agencies piled on by dropping their ratings on the company's debt.
Today Moody's Investors Service dropped Nokia's bond offerings three levels below investment grade at a time when it could use a much more positive move. The downgrade followed a similar move by Fitch Ratings Ltd. last week.
Moody's downgraded the company's long-term senior unsecured debt rating to Ba3 from Ba1, and it confirmed its outlook on Nokia "remains negative." The ratings agency cited concerns about the poor performance of Nokia's devices and services business in the second quarter. The Lumia smartphone, on which Nokia pinned its hopes for a recovery, isn't selling as fast as would be required to pull the company out of a financial hole, Moody's said. Furthermore:
The negative outlook on Nokia's Ba3 ratings reflect the low visibility with regard to (i) the trend for Nokia's market share in smartphones and whether the Windows-based devices can attain a solid market share with positive income contribution to Nokia; (ii) demand and margin potential for the group's feature phones in emerging markets; and (iii) Nokia's future net cash flows, which are adversely affected by pricing pressure, marketing incentives and restructuring expenditures, although this is partially mitigated by royalty collections, platform payments from Microsoft and potential disposal proceeds.
The potential for an upgrade is "limited," Moody's said.
Nokia executives weren't too pleased with the downgrade. They disputed the agency's conclusion that the company's financial position had worsened. "While we are disappointed with Moody's decision, its impact on the company is limited," CFO Timo Ihamuotila said in a press release. "We are quickly taking action to position Nokia for future growth and success. Nokia will continue to focus on lowering the company's cost structure rapidly, improving cash flow and maintaining a strong financial position."
Those actions have included massive layoffs and a strategic alliance with Microsoft Corp., under which Nokia adopted the software giant's Windows operating system and ditched its own Symbian OS for its handsets. Nokia has also taken steps to expand in the North American market, where it has been relegated to bit-player status for the last several years.
None of these actions will help Nokia in the short term. In fact, the company is highly likely to keep facing tough market conditions for a while. Its future profitability could come into question if customers do not show interest in the Lumia and other phones. For now, it's safe to bet on Nokia not getting its investment grade back this year.
The latest news from Nokia does not bode well, either: it's closing its Finnish factory.http://www.slashgear.com/nokia-closes-finnish-plant-as-part-of-restructuring-effort-27240594/
Nokia isn't trying right now to win in its market. It's in survival mode and it's going to have to cope with being no longer market leader for a while.
@Himanshugupta, I agree the competition is fierce and may not appear secure. In business world it's all about risk taking. I think Nokia has probably done its homework right this time by making plans to reduce operational cost and hopefully reinvest in vital innovative programmes. It's a risk worth taking. I hope it pays off.
As for Jolia mobile, this was a joint venture I believe with Nokia in 2010 but didn't work. I understand Nokia released the N9 based on Meego smartphone last summer. I'm just curious, what difference can Jolia bring by using Nokia's abandoned OS to create a Meego smartphone? What are your thoughts?
I think Nokia has shown that it meant business by embarking on a serious restructuring programme. The plans to initiate operational changes and focus on cost reduction target are painful but necessary moves. I believe this moves will help to streamline the company and thus refocus on specific key growth areas. These exercises are potential and will prove beneficial in the long run.
Anna, in such fierce competition the future for Nokia does not look secure. I am more hopeful for Jolla Mobiles, who are trying to revive MeeGo and bring smartphones build on this platform.
Anna, Why do you believe Nokia will bounce back? I am not saying it won't but I am interested in your reasons. What will it take in your opinion for this company to regain its footing and is it doing all these?
I so not really think an average customer really worries about company business track. Rather Nokia is suffering in the smart phone segment where the customers actually look at the contemporary and famous phone models. I think Nokia done a decent job with lumia but they should be more aggressive to come out with various models like the Samsung has done with their galaxy. I believe Nokia and its employees are already on this.
@Wale, whichever way we view it, such ratings does impact a company's outlook and equally affect a company's investment opportunities. This rating will not benefit Nokia at a time like this. The company is battling for its survival and I think it will probably regain itself again. It's certainly not the end for Nokia.
This would be a good time for Microsoft to step in and pick up Nokia for a song. Nokia the only mobile phone using their OS, and if Nokia fails, so does Microsoft in the phone market. Nokia's problem is not that they don't have good products, it is lack of faith they will survive their financial problems that will hold the back. No one will buy a phone from a company that cannot be relied on to be in business next week.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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