While some companies might dwell in the negatives of a ratings
downgrade, Monday saw handset manufacturer Nokia (NYSE:
) 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
CFO Timo Ihamuotila dashed right in to say that NOK is taking
swift action to reduce costs while it switches to Microsoft's
) 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
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
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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