Moody's Downgrades Nokia's Rating, Says Transition Challenging

Moody’s Investors Service on Monday downgraded the rating of Finland-based mobile maker Nokia from Baa3 to Baa2, a move in response to the company’s announcement of sharp decline in mobile sales in the first quarter this year.

“While volatility by quarters is not uncommon, Moody’s believes that the structural challenges facing Nokia's Mobile Phones segment may not be easy to address, such as the market share gains recorded by makers of very low-end phones or new phone promotions by Chinese carriers,” the rating agency said in a statement.

The latest downgrade keeps the rating of Nokia one notch above junk with a negative outlook, and the downgrade comes ahead of company’s announcement of its first quarter earnings on April 19.

Nokia, which is struggling to gain a market share in the intensely competitive smartphone segment, had said last week that multiple factors negatively affected its Devices & Services business to a greater extent than previously expected.

Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition, said Stephen Elop, President and CEO of Nokia.

Also, Moody’s said 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 cellphone maker launched Lumia 900 in the United States through AT&T on April 8, but was found to be carrying a software glitch which could cause some users to lose their data connection.

“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,” said the agency.

“Moody's expects that the margin pressure in Nokia's Mobile Phones segment and the downward migration of lower-end smartphones into the feature phone category will continue. Nokia is therefore more reliant on the Smart Devices segment and thus the Lumia product family, thereby reducing the group's revenue diversification,” it said.