The credit rating of Nokia was downgraded a notch by officials at Standard and Poor’s recently. This is due to the Finnish cell phone giant’s inability to defend its position in the market against companies like Apple, HTC and Samsung. Nokia’s corporate credit was cut from BBB to a BBB-. According to S&P, there is also a possibility of a further downgrade over the next two years, unless the company can stabilize its position. An official from the S&P announced in a statement that if the cash holdings of the company continue to decrease, they would have no choice but to reduce the rating of Nokia even further.
The officials also announced that the new ratings reflect the position of Nokia within the smartphone sub-division of the telecommunications market. However, publicity officials of Nokia maintain that the decreased rating does not affect their outlook towards their financing costs. Rather, it has highlighted their strong balance sheet and good liquidity position. They also stated that this was not a reflection of their position in the market, but that of a more conservative financial policy than what most other companies are used to.
It also appears that the new drop in rating has not affected investors either. On a Helsinki stock Exchange that dropped 0.05 per cent through the day, the price of Nokia’s stocks actually went up almost 0.4 per cent. However, one must admit that Nokia has not been doing so well, and the figures say it all. While Nokia posted a 1.8 billion euro profit (with almost half of it coming during the final quarter) in 2010, it did not fare so well in 2011. In fact, the company reported a loss of 1.2 billion Euros in 2012 (with a 1.07 billion euro loss in the final quarter).
The drop in rating comes at a time when Nokia is trying to restructure its organizational framework. This includes the cancellation of the Symbian range and a partnership with Microsoft that has led to the Lumia smartphone series. Nokia desperately needs the new phones to succeed if they are to provide competition to brands such as Blackberry, Apple and Samsung. While S&P is optimistic about the new partnership, they are still unsure of the impact the high-priced Lumia phones can make in this market.They have thus decreased the rating of Nokia, and predict a further drop in the share prices and revenue of the Finnish mobile phone giant.
