Fitch downgrades Nokia debt rating as cash becomes focus

Fitch downgrades Nokia debt rating as cash becomes focus

Summary: As worries persist about Nokia's cash burn, a debt rating service downgrades the company.

SHARE:

Fitch Ratings on Friday downgraded Nokia's debt rating to "BB-" from "BB+" with a negative outlook.

The debt rating downgrade comes as Nokia delivered weak second quarter results and a rough third quarter outlook. The results, which weren't the complete disaster some analysts expected, didn't allay cash concerns for the second half. Bond ratings affect the interest rates that companies pay to float debt.

Nokia ended the quarter with EUR4.2 billion in cash, but that war chest will erode quickly be restructuring charges. Morgan Stanley projects Nokia will end up with EUR2.5 billion in cash by the end of the year.

Fitch said in a statement:

Fitch believes that the company does not have products in its current portfolio that can stem the recent losses. The release of a Windows 8 suite of products now appears crucial. However, the degree of competition in the industry would suggest that it is going to be difficult to re-establish a significant presence in the smartphone market. Numerous handset makers have issued profit warnings recently. For Nokia, an adjusted gross margin profile of around 16% in its Smart Devices division is unlikely to support a profitable smartphone business and Fitch remains unconvinced of Nokia's ability to improve pricing in this segment. Furthermore, the announcement that the current batch of Lumia devices will not be able to upgrade to Windows 8 is likely to put additional pressures on Nokia in the coming quarters. Given all of these headwinds, there is a significant risk that the company's performance will continue to deteriorate.

Morgan Stanley analyst Francois Meunier said that Nokia inability to project a year-end cash position only makes investors more anxious about the company's prospects. "We believe that investors are very concerned by Nokia’s cash position and guidance on cash would be more than welcome. We forecast EUR2.5 billion net cash by year end," said Meunier.

Nokia's biggest problem is that 20 percent of its device revenue depends on a beat-up Symbian platform. Meanwhile, Lumia sales can't make up the difference. Without significant Windows Phone adoption, Nokia's cash burn will continue. For its part, Nokia can't give an outlook for its year-end cash position because it has little visibility into its business right now.

Related:

Topics: Mobility, Hardware, Nokia, Smartphones

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

7 comments
Log in or register to join the discussion
  • Fitch downgrades Nokia debt rating as cash becomes focus

    Sweet, send those stocks down a bit more to make them cheaper then I can scoop them up.
    Loverock Davidson-
    • There Has Never Been A Better Time Than Now To Buy Nokia Shares ...

      ... if you have more money than sense.
      ldo17
  • rating agencies are a fraud business..

    These rating agencies should have been banned a long time ago.
    owllnet
  • Still in love

    For Nokia's sake, I'm glad to see that two of our resident Microsoft Munchkins are here to show the flag. It seems evident to me that at some point, to save itself and to make sure it gets at least some presence in mobile, Microsoft will switch allegiance to Samsung or LG, leaving Nokia to fend for itself.

    When we see the Munchkins go quiet on the Nokia threads, we'll know it's coming.
    Robert Hahn
    • I don't know....

      It would seem to me that casbah wise Nokia has little to worry about cause MS can't allow the company to go under. like it or not MS has tied itself to Nokia's success and or failure and to protect its Window's8 success in mobile Nokia at least for the short term can not be seen to fail. So MS will likely force feed Nokia if needed and keep it on life support for as long as it takes to prove Windows 8 on phones. Kind of like the big argument over Terry Shivo back in the day. Look! She moved! Aw you missed it but she did move so everything is fine...

      Pagan jim
      James Quinn
      • Nothing succeeds like success

        All these theories about how Microsoft will swoop in at the end and buy Nokia, or keep Nokia running, etc., assume the existence of a top-secret "SUCCEED" button at Nokia that no one has pushed, presumably because no one knows where it is. Under these theories, Microsoft comes in, finds the button and pushes it, and Nokia suddenly becomes a big success.

        There's no such button. We can be sure that the best minds at both Nokia and Microsoft are racking their brains trying to find ways to sell more phones faster. The performance is what it is.

        Microsoft's problem is that they cannot wait for Nokia, or an acquired MicroNokia, to get its act together. This year almost a billion mobile devices will be sold. Next year it -will- be a billion. The year after that -more- than a billion. Where is Windows in all of this? A blip. Meanwhile, PC sales (of all form factors) are stalled at around 350 million/year.

        Growing their own successful phone business from the ashes of Nokia is just too long and slow a process. They need somebody who has a successful phone business NOW to get serious about Windows Phone (where 'get serious' means more than the sort of half-hearted measures Samsung has taken so far). I don't know how they make that happen without plunging the final knife into Nokia.

        Microsoft's big strategy of putting the same UI on everything from phones to server consoles works both ways. It's just plain not safe for Microsoft to allow -any- competing OS to show up on a billion devices. If people like the UI on their phones, they'll accept it on tablets. And then on laptops. It might take 20 years, but this is exactly how big old companies get swept to the curb. They can't let that happen. And it's becoming increasing obvious that they can't rely on Nokia to prevent it.
        Robert Hahn
  • The company isn't in great shape.

    Who should be on the chopping block? I would say the CEO should be canned.
    Troll Hunter J