Bloomberg News

Nokia Debt Lowered to One Step Above Junk by S&P on Outlook

March 02, 2012

A visitor steps across a Nokia Oyj logo at the entrance to the company's booth at the Mobile World Congress in Barcelona. Photographer: Chris Ratcliffe/Bloomberg

A visitor steps across a Nokia Oyj logo at the entrance to the company's booth at the Mobile World Congress in Barcelona. Photographer: Chris Ratcliffe/Bloomberg

Nokia Oyj (NOK1V), the world’s biggest maker of mobile phones, had its debt rating cut to the lowest investment ranking by Standard & Poor’s, which cited operating margins that may be further reduced this year.

The long-term rating was lowered to BBB- from BBB with a negative outlook, Standard & Poor’s said today. Moody’s Investors Service ranks the debt Baa2, the second-lowest investment grade.

“The negative outlook reflects the possibility of a downgrade in the next two years” if mobile-phone margins remain in low to mid-single digits or if cash declines to less than 2 billion euros ($2.6 billion), Standard & Poor’s analyst Thierry Guermann wrote in a report. It was the fourth cut within a year by the ratings company.

Nokia, based in Espoo, Finland, is trying to build momentum for its four-month-old Lumia Windows Phone line and this week introduced a 189 euro Windows Phone to compete with Android smartphones. Sales of Windows Phones may not increase fast enough to offset a decline in the company’s established line based on the Symbian software, which is being phased out, Standard & Poor’s said.

Margins Estimate

The rating cut won’t have a material impact on Nokia’s current financing costs, spokesman James Etheridge said in an e- mailed statement.

Nokia’s handset margins, adjusted for some items, declined from more than 20 percent in 2007, when Apple Inc. (AAPL) introduced the iPhone, to 4.9 percent last quarter, pared by competition from Apple’s expansion and from devices running Google Inc. (GOOG)’s Android software.

Standard & Poor’s forecast a “low single digit” margin this year, based on non-IFRS accounting rules, compared with 7 percent of revenue last year, it said today.

Nokia’s smartphone market share was 12.6 percent in the fourth quarter, down from 28.1 percent a year earlier, according to Strategy Analytics figures cited by Standard & Poor’s. Its overall handset share was higher at 25.5 percent, helped by lower-priced phones which account for about half its device revenues.

Fitch Ratings rates Nokia BBB-, its lowest investment grade.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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