Moody's downgrades Nokia to near-junk status
Finns failing at high and low end of market
Ratings agency Moody's has lowered its debt rating for Nokia to near junk status, and warned that the company is facing even tougher times ahead.
In a note to investors today Moody's cut the world's largest mobile handset manufacturer's rating from Baa2 to Baa3, its lowest rating for investment grade stock.
While the trigger for the downgrade was last week's less-than-inspiring financial results, Moody's warns that Nokia faces a rough road ahead in its smartphone business and further downgrades are possible.
"Nokia's transition in its Smart Devices from Symbian-based phones to the Windows-based Lumia devices is proving more challenging than expected given that sales of Symbian-based devices are falling off very quickly while Lumia sales are only ramping up slowly," the note reads. "Nokia's current Baa3 rating reflects Moody's expectation that Lumia devices will be accepted in the market in 2012 with the help of price and marketing support and that it will become the third smartphone system next to Google's Android and Apple's iOS."
No doubt Nokia's management, and Microsoft's for that matter, are hoping that Windows Phone will be a massive hit and grow to rival Android and iOS, but there's a huge way to go. In the meantime Nokia's low-end phone business is being rapidly eroded by cheap Chinese competition Moody's notes, while the agency predicts more money will be needed to support joint venture Nokia Siemens Networks next year.
It's not all doom and gloom for the Finns however. Moody's notes that Nokia has reserves of around €10bn, roughly double its debt, and the company now has the Lumia line well in hand, even if it is having to give some away free.
Moody's said it would upgrade Nokia again if it showed evidence of increasing margins or got a lot of support from buyers for the Lumia range. However, a further downgrade is promised if things continue to get worse.
You could argue that Moody's was one of the ratings agencies that consistently passed off sub-prime debt as investment grade material in the noughties and that it may well be wrong – indeed, Nokia's share price rose slightly on Monday. But more than a few analysts are now seriously concerned about Nokia's future, with the company losing both staff and customers, and in an alliance with Microsoft to push an unpopular mobile operating system. ®
Re: Nokia will come good
Well, they are currently totally bound to the fate of Windows Phone. Their future is in Microsoft's hands. The lure of their admittedly good hardware engineering isn't anything like strong enough on its own to attract customers. Windows Phone shows some very decent promise, but they've got a long way to go before we're all clamouring for one.
Having read about various things Nokia over a couple of decades I'm not entirely surprised that it has sunk to this level. From the very beginning of the smartphone revolution when Nokia first acquired Symbian from Psion (yes, a looooong time ago) they started making a mess of things. It would appear from interviews with former Psion guys that Nokia just didn't understand it. I mean, consider how awesome a Psion 5 would have been had Nokia just added a phone to it and left everything else exactly as was? That was in 1998, but instead Nokia spent three years 'improving' it before finally puking up the 9210 which was, erm, worse.
My view is that Nokia is first and foremost a hardware company with no one high up who really, really understood software and its market power. They didn't see the way in which it would revolutionise mobiles as soon as the CPU power was there to support it. And they continued to do so all the way through the 2000s. All their recent software decisions have been poor, and give the impression that engineering pride is more important than commercial reality. Dented pride is nothing like as bad as corporate extinction. Ask Saab. Oh wait, you can't.
Like it or loathe it, or even loathe it a lot, and despite the mess, Android is the only money spinner available to outfits like Nokia at the moment. Even if they adopted it just for a few years it could save the company. In a weird way I think Microsoft need Nokia to adopt Android for a few years to make sure that Nokia is still there for when Windows Phone starts attracting larger sales. I mean, if Nokia don't make high spec Windows Phone mobiles, who will?
the microsoft kiss of death, the gift that keeps on giving. i'm truly sorry for the innocent workers that are losing their jobs and will continue to lose their jobs, if it weren't for that, i'd be quite happy to watch this spectacular downward spiral.
Re: Nokia will come good
@ Paul Shirely,
"Somehow I don't imaging the latest ploy of turning Windows into a massive WP8 advertising billboard will change much..."
You know, I think you've hit the nail on the head perfectly there.
I think it's a dangerous game for MS to play. Win 8 CP isn't exactly going down well (I hate it, staying with Win7). If Win 8 Desktop gets a poor reputation then that might actually put people off Win Phone 8, even though the interface itself seems to be really quite good for mobiles / tablets. Customers can be very fickle like that.