Now S&P downgrades Nokia stock to "junk"
Only a couple of days after Fitch downgraded Nokia stock to “junk” status and gave the Finns a negative outlook, now Standard & Poor’s follows suit by similarly decreasing Nokia’s credit rating to “junk” or BB-. This removes the company from S&P’s list of low investment companies to non-investment status, and on top of that the rating agency gave the Finns a negative outlook with the possiblity of another downgrade happening in the future if the situation doesn’t stabilize.
Nokia is sitting on a solid pile of cash, but it’s already started burning it and that concerns credit agencies. Moreover, S&P says that even if Nokia’s Lumia series meets expectations, the company won’t be able to make up for a huge decline in Symbian sales. Symbian, announced by Nokia CEO Stephen Elop as a “burning platform,” is what’s keeping Nokia afloat. Last quarter, in the first three months of 2012, Symbian really started burning and Nokia revenue fell accordingly.
"We still expect revenue from Lumia smartphones to grow over time but not sufficiently to offset a rapid decline in revenue from Symbian-based smartphones over the next few quarters," S&P explained.
Here’s the list of factors that S&P wants to see dealt with to fix the rating:
- revenues in the Devices and Services division should stabilize,
- cash burn should decline significantly,
- non-IFRS operating margins should return to at least mid-single digit percentage levels.
Nokia defended its positions earlier when Fitch dropped its ratings, and it echoes the same arguments now:
"As we have detailed in recent announcements, Nokia is in the middle of a transformation program which encompasses every aspect of our business. We are implementing a decisive action plan to position our company for future growth and success. The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market," Nokia CFO Timo Ihamuotila responded.
Nokia’s net cash reserves stand at around $6.48 billion (4.9 billion euro) currently.