Downgraded to junk status: downfall of Nokia
Following another round of poor results and an ongoing bad outlook for the business, Nokia has seen its 'junk' status rating from Moody's drop even further.
Moody's downgraded Nokia's Ba1 junk status even further after the manufacturer posted weak second quarter results, to Ba3. Two other rating agencies, Fitch and Standard & Poor, downgraded Nokia to junk status in April this year.
Nokia reported last week that its net sales in the second quarter of 2012 hit Euro 7.5 billion, up from Euro 7.4 billion in the first quarter of 2012, a positive movement of 3%. However, year on year net sales were down by 19% for the second quarter. Nokia Devices & Services second quarter net sales decreased 5% quarter on quarter, down 26% year on year for the quarter.
Smart devices dropped a heavy 39% in volume year on year for the second quarter comparison, and decreased by 14% quarter on quarter to 10.2 million units. However, Lumia second quarter volumes increased quarter on quarter to four million units. Mobile Phones second quarter volumes increased quarter on quarter and year on year to 73 million units, up 2% from the same period in 2011.
Julian Jest, research analyst for handsets and devices at Informa Telecoms & Media, commented: 'Admittedly Nokia is running out of time; however it still has sufficient cash to make it through subsequent quarters, and is willing to do whatever it takes, whether it be decreasing its work force or spinning off parts of the business not relevant to its central strategy, such as luxury phone brand Vertu.'
Stephen Elop, Nokia CEO, said: 'Nokia is taking action to manage through this transition period… While Q3 will remain difficult, it is a critical priority to return our Devices & Services business to positive operating cash flow as quickly as possible.'
Elop added that the business was working fast on its restructuring programme: 'We are executing with urgency on our restructuring program. We are disposing of non-core assets like Vertu. We are taking the necessary steps to restructure the operations of the company, which included the announcement of a new program on June 14. Faster than anticipated, we have already negotiated the closure of the Ulm, Germany R&D site, and the negotiations about the planned closure of our factory in Salo, Finland are proceeding in a collaborative spirit.'
Jest continued: 'Nokia has received criticism for relying too much on the Windows Phone platform. While there are other options, such as using the Android operating system (OS), Nokia is right to persevere with the Windows Phone OS. Lumia sales have picked up in the second quarter, particularly in North America, a key market in which Nokia has struggled in recent times. The biggest challenge that lies ahead for Nokia is maintaining its marketshare in China where it faces tough competition from local brands.'
