NOK Displays Confidence in the Midst of a Downgrade


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While some companies might dwell in the negatives of a ratings downgrade, Monday saw handset manufacturer Nokia (NYSE: NOK ) respond to a downgrade by Moody's by saying that its financial position remains strong.

Now, many people will be quick to pipe in with, "well, apparently Moody's does not think so, and they are good at working out things like that". It is, however, admirable that NOK's confidence is so tough to shake.

Moody's downgrade took Nokia's long-term credit rating from Baa2 to Baa3, while maintaining a negative outlook on the rating.

CFO Timo Ihamuotila dashed right in to say that NOK is taking swift action to reduce costs while it switches to Microsoft's (NASDAQ: MSFT ) Windows software for its handsets.

"Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position," Mr. Ihamuotila said.

At the end of March, NOK's gross cash balance was at 9.8 billion euros ($12.82 billion). It also said that it has a net cash position of 4.9 billion euros.

It has set its own target of reducing operating expenses by over 1 billion euros at its Devices & Services mobile phone unit. In addition, it is looking to make another 1 billion euros in savings at its Nokia Siemens Networks network equipment joint venture.

The downgrade now sees Nokia placed at Moody's lowest investment-grade level, but it is really unsurprising considering how fast it is going through cash since linking up with Microsoft.

In a statement, Moody's analyst Wolfgang Draack said that, "Moody's believes that the structural change 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 promotions by Chinese carriers."

On Monday, Morgan Stanley released a research report stating that Nokia has the Lumia 610 as its low-end smartphone offering, though at MWC, management disclosed an unsubsidized price of €189. It suspects this will gain limited traction in China. China still represented around 30% of Nokia smartphones in Q411, so the impact could be material to this part of the business.

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