Rating agency Standard and Poor's (S&P) recently downgraded
the credit rating of
Nokia Corp.
(
NOK
) to BB+ from BBB-. The rating agency has also downgraded the
company's short-term credit rating to B from A-3. With this
downgrade, Nokia's debt now falls under the junk category, which is
a notch lower than its previous investment grade rating of
BBB-.
The company's poor first quarter results coupled with the news
that Samsung Electronics has surpassed Nokia as world's largest
mobile phone maker was mainly responsible for the rating
downgrades.
Recently, Nokia announced disappointing financial results for
first quarter 2012 based on increased competition from
Apple Inc.'
s (
AAPL
) iPhone and a gamut of smartphones that runs on
Google Inc.'
s (
GOOG
) Android operating system. Nokia also faces stiff competition in
the low-end segment from Chinese manufacturer ZTE.
S&P also held Nokia's disappointing outlook for the second
quarter of fiscal 2012 responsible for the downgrade. Recently,
Fitch also downgraded Nokia's credit rating to junk category while
Moody's slashed it to near junk status. S&P has warned that it
could further slash the telecom giant's ratings if it fails to
improve its financial performance.
Currently, Nokia is in a transition phase, shifting from its own
Symbian-based feature phone to
Microsoft Corp.
(
MSFT
) developed windows-based smartphones. Sales has been slowing and
as per data published by research firm Strategy Analytics, Nokia
has been overtaken by Samsung as the world's largest mobile phone
manufacturer, with 44.5 million smartphones sold in the first
quarter compared to Nokia's 12 million.
Moreover, Nokia's latest LTE-based Lumia 900 smartphone is
facing some data connection problems, which could hamper Lumia's
success. To reduce its loss, the company plans to trim down its
costs, improve its cash flow and introduce innovative new
products.
Based on these measures, we believe Nokia plans to turnaround
its fortunes and avoid any further downgrades. However, we remain
very much skeptical regarding the company's turnaround any time
soon.
We, therefore, retain our long-term Underperform recommendation
on Nokia. Currently, Nokia has a Zacks #5 Rank, implying a
short-term Strong Sell rating.
APPLE INC (
AAPL
): Free Stock Analysis Report
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
NOKIA CP-ADR A (
NOK
): Free Stock Analysis Report
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