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.
I'm sure Nokia is not a company which is going to go down that fast. They still have lot of energy left in them and their workforce is so huge to compete against any mobile company. All I would like to see is how they can turn around and come out with more fascinating products in next few months.
I fear for the future of Nokia or at the least the Nokia we all know and used to love. If it does come through this it will need to be a very different company.
FlyingScot, Nokia will, in my opinion, come through this but as you noted, it will be a much different and smaller company. The same happened to Motorola Mobility.
@FLYINGSCOT: it is right, what is happening could, potentially, change current status of the company towards a next positive step forward, I am wondering they are conscious about, or not.
Great companies often get into trouble, but some of them can manage to turn things around with new market strategies. Having said that, I don't trust everything those rating agencies say and the inpact of such decision can be limited, or at least, it won't make anything worse to Nokia.
Nokia is still "the world's second-largest mobile phone maker by unit sales (after Samsung)". You don't fall from that ranking overnight. The company is strugling like many other phone makers, but the end is not that near.
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.
@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.
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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Thailand Stages a Comeback 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.
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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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