|Nokia Gets Moody's Credit Warningby Zacks Equity Research|
July 22, 2013
Nokia Corporation’s ( NOK) struggle continues as Moody’s Rating Agency has issued a credit warning to the
company after it reported weak financial results for the second quarter of 2013. Drop in sales and continuous
cash drainage has also been cited as a reason.
Nokia already holds a Ba3 rating from Moody’s, which implies a junk status for the Finnish handset
manufacturer. The status signifies Nokia’s uncertain creditability and the loss of financial institutions’ trust in
the company. According to the rating firm, continuous drop in the top line could further deteriorate Nokia’s
rating by one notch as the company battles to maintain its smartphone market share.
Recently, Nokia agreed to acquire Siemens AG’s ( SI) 50% stake in its equipment joint venture, Nokia
Siemens Networks (:NSN), for nearly $2.15 billion. At the end of second-quarter 2013, Nokia had
approximately $11.9 billion of cash and marketable securities on its balance sheet. The rating firm believes
that acquiring Siemen’s stake will bring the company’s cash position below the minimum amount required to
maintain the Ba3 rating.
This is the second rate cut for Nokia as Standard & Poor recently 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.
In the recently reported second quarter of 2013, Nokia’s quarterly adjusted (excluding special items)
earnings per share of a break-even were better than the Zacks Consensus Estimate. However, the
company’s quarterly revenues registered an annualised fall of 24.5% and were also below the Zacks
Nokia’s flagship Lumia smartphone had an unfavourable quarter as the company continues to lose market
to Apple Inc.’s ( AAPL) iPhone and smartphones running on Google Inc.’s ( GOOG) Android platform. Nokia
shipped only 7.4 million units reporting a 27% annualized decline. Nokia’s feature phone segment also
performed poorly and shipped only 53.7 million handsets.
At the end of the first half of 2013, Nokia’s total debt improved to $4,645 million as compared to $7,003
million at the end of 2012. Although Nokia’s debt position has improved, we believe that declining market
share along with continuous cash loss could impact the handset manufacturer’s rating further.