) rating has been impacted following its proposed acquisition of
) stake in Nokia Siemens Network (NSN). Standard and Poor's
(S&P) has downgraded the handset manufacturer's long-term
credit rating to B+ from BB-.
According to the rating agency, Nokia's full control over NSN
might weaken the company's balance sheet. The revised rating
signifies that Nokia holds an 'aggressive' financial risk profile
and a 'weak' business risk profile. Nevertheless, S&P has
affirmed Nokia's 'B' short- term corporate credit rating along
with a stable outlook.
Recently, Nokia reached a deal to purchase Siemens' 50% stake
in NSN for $2.2 billion, out of which $1.5 billion will be paid
in cash and the remaining amount will be paid in a secured loan
from Siemens after a year from the closing of the transaction.
The deal is expected to close in the third quarter of 2013,
subject to customary regulatory approvals.
Although formed in 2007, NSN achieved its operational
profitability in the third quarter of 2012, as the company lacked
severely on the CDMA front. However, of late, the equipment
vendor has shown signs of improvement after restructuring its
business including several rounds of job cuts. The
acquisition is expected to compensate its struggling handset
Meanwhile, S&P believes that the deal will not have much
positive impact on Nokia's profitability or cash flow measures
but will affect its cash position. The Finnish giant countered
S&P's concerns by arguing that the deal will add significant
value to Nokia's shareholders.
The rating agency also remains sceptical about the cash flow
generating ability of Nokia's Device and Service segment and
believes that the company's free operating cash flow (FOCF) will
be negative in the second half of 2013. However, S&P will
raise Nokia's rating if the company manages to generate a
Despite facing significant market share loss to
) iPhone and other smartphones running on
) Android operating System, Nokia has been able to maintain its
strong cash position. At the end of the first quarter of 2013,
Nokia had approximately $5,917 million of cash and cash
equivalents compared with $5,755 million at the end of 2012.
Currently, Nokia has close to $7 billion in debt, which
remains a concern for the smartphone manufacturer. Though Nokia's
cash position remains promising, sliding market share along with
negative cash flow might impact its rating in the future.
Currently, Nokia carries a Zacks Rank #3 (Hold).
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