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Helsinki - Rating agency Standard and Poor's on Wednesday
downgraded Nokia's long-term corporate credit rating further into junk status
amid concerns over the cellphone company's deteriorating profitability.
While cutting its rating on Nokia by two notches to BB-,
S&P warned there could be further downgrades as it slapped a negative
outlook on the company. For S&P, anything below BBB- is considered junk
status, or not investment grade.
That means S&P thinks Nokia is a speculative investment
and will likely make it more expensive for the company to raise money in
capital markets.
S&P also lowered the rating for the group's unsecured
debt - also to a BB- from a previous BB+ rating, saying that Nokia's second-quarter
results and guidance had been lower than expected.
"The negative outlook reflects the possibility of
another downgrade if Nokia fails to stabilise its margins and significantly cut
its cash losses," the agency said. "We now assume that Nokia's smartphone
operations will post lower revenues than we previously anticipated over the
coming quarters."
Last month, Nokia reported a 19% drop in sales and a
quadrupling of net loss to a record €1.4bn for the second quarter. Nokia CEO
Stephen Elop also said the third quarter would "remain difficult" as
the phase-out of Symbian-based phones continues in favour of the Windows
operating system that Nokia adopted after joining forces with Microsoft last
year.
The ailing Finnish firm has been fighting fierce competition
from Apple's iPhone and other makers using Google's popular Android software,
including Samsung Electronics and HTC of Taiwan. It is also being squeezed in
the low-end by Asian manufacturers making cheaper phones, such as China's ZTE.
Nokia CFO Timo Ihamuotila said the impact of S&P's
decision on Nokia was "limited."
"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," Ihamuotila
said.
It was S&P's second Nokia downgrade since April. Moody's
has downgraded Nokia three times since April and Fitch dropped Nokia to junk
status four months ago.
Nokia was the world's leading mobile phone maker for more
than a decade but was overtaken by Samsung in the first quarter, according to
research firm Gartner.
Nokia has said that it expected a difficult transition
period from Symbian and Meego platforms to the Windows operating system.
Last month, it reported that the decline of Symbian phones
dragged down sales in all regions expect for North America, where the decline
was "more than offset" by sales of the Windows-based Lumia devices.
Nokia said it sold 4 million Lumia phones worldwide in the quarter - double the
amount in the first quarter.
Nokia's global market share has steadily shrunk from the
peak of 40% in 2008 to 29% in 2011 and is expected to dwindle further this
year. Its shares have fallen to their lowest level since the 1990's, plunging
below €2 in mid-June.
On top of previous job cuts Nokia said in June that it will
slash 10 000 jobs and close down research and development facilities in Germany
and Canada, as well as its main manufacturing plant in Salo, Finland. Nokia
aims to save €1.6bn through these measures by the end of next year.
In June, Espoo-based Nokia employed 113 000 people, down 18%
on a year earlier.
Despite the latest downgrade, Nokia's share price closed up more than 3% at €2.08 on the Helsinki Stock Exchange.
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