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Moody's downgrades Nokia’s credit rating to junk status

Proactive Investors
Friday, 15 June 2012

Moody’s Investors Services has downgraded struggling Finnish cellphone maker Nokia’s (NYSE:NOK) credit rating to junk status, with a negative outlook.

Nokia’s crediting rating for long term senior unsecured debt has been downgraded to Ba1 from Baa3. This is the second downgrade by Moody’s within three months.

The company’s credit was also downgraded to junk status by Fitch Ratings and Standard & Poor's in April.

"Today's rating action reflects our view that Nokia's far-reaching restructuring plan delineates a scale of earnings pressure and cash consumption that is larger than we had previously assumed," said Wolfgang Draack, senior vice president at Moody’s.

Despite the downgrade, Moody's views the telecommunication company’s giant restructuring plan as a positive, and necessary to return to profitability.

Draack noted that a return to profitability also depends on Nokia transitioning its range of smartphones to the Windows operating system and stabilizing its feature phone business.

Nokia said Thursday it would lay off a further 10,000 jobs globally by the end of 2013 in a further drive to save costs and streamline operations.

Last year, Nokia announced more than 10,000 layoffs, aimed at cutting operating expenses by 1 billion euros or $1.31 billion by 2013.

The company will shut some research and development projects, including facilities in Burnaby, B.C. and Ulm, Germany and also close its core manufacturing plant in Salo, Finland but maintain research and development operations at the plant.

In April, Nokia announced one of its worst quarterly results ever, blaming tough competition for a 929 million euro net loss in the first quarter as sales plunged, especially in the smartphone market.

Last year, Nokia was still the world's top cellphone maker with annual unit sales of some 419 million devices, but in the last quarter of the year it posted a net loss of 1.07 billion euros, a marked reverse from the 745 million euro profit a year earlier.

In a separate statement on Friday, Fitch Ratings said the company over the last two months has moved further away from being able to generate positive margins and revenue.

The ratings agency added Nokia is now facing a "precarious combination of a depleted cash balance, without an end in sight to the declining cash flows."
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Source: Bloomberg - on June 6, 2012

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