Nokia Corporation's
(
NOK
) woes continue to deepen as rating agency Standard and Poor's has
further downgraded it to junk status and has also slapped a
negative outlook on the company. According to S&P,
deteriorating profit and lowering of future guidance has resulted
in the rating cut.
S&P has downgraded both Nokia's long- and short-term credit
rating by two notches to BB- from BB+ and has warned that there are
chances of further rating downgrades in future. The recent
downgrade of Nokia's credit rating means that it will be more
expensive for the company to raise money from the capital
markets.
Nokia has been fighting market share loss from rival
Apple Inc's.
(
AAPL
) iPhone, and a gamut of other smartphone manufacturers using
Google Inc's.
(
GOOG
) Android platform. It is expected that the company's struggle will
continue in recent future as it continue its transition from
Symbian to
Microsoft Corporation's
(
MSFT
) Windows based operating system.
Recently, the company has lost its top position to South Korea's
Samsung Electronics and is also facing margin erosion and severe
cash losses. In a bid to beat this difficult situation the company
is trimming its workforce by 10,000, downsizing its research and
development units and selling its luxury phone unit Vertu thereby
helping it to reduce $2 billon in cost by the end of 2013.
Currently, Nokia is under the scanner of all the major rating
agencies after Moody's and Fitch recently downgraded the Finish
phone maker to junk category. The company got a shot in the arm
after it declared that the company's Lumia customers won't be able
to upgrade their phone to Windows 8 software. Grappled with falling
sales Nokia also halved the prices of its latest Lumia offerings in
North America.
Amidst these negative sentiments we are concerned about the
company's future. We believe that though the company is slated to
launch new phones based on the Windows 8 platform it could face
further slide in rating if it fails to stabilize its revenue and
margins going ahead.
The current Zacks Consensus Estimate for Nokia Corporation is
pegged at a loss of 11 cents for the third quarter with a growth
rate estimate of (382.35%). For 2012, the Zacks Consensus Estimate
stands at a loss of 37 cents with a growth rate of (197.97%) but
for 2013 the Zacks Consensus Estimate stands at breakeven with a
growth rate of 100.00%.
Recommendation:
We retain our long-term Neutral recommendation on Nokia.
Currently, it has a Zacks #3 Rank, implying a short-term hold
rating.
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