Standard & Poor’s has become the latest big ratings agency to downgrade Nokia, sending the struggling handset vendor’s debt further into junk territory.
S&P has lowered its long-term corporate credit rating on Nokia from 'BB+' to 'BB-', three notches below investment grade. It also issued a ‘negative outlook,’ hinting at the possibility of another downgrade in the future.
The ratings firm said its actions reflect “a downward revision of our estimates of revenues and profitability for Nokia's smartphone operations in 2012 and 2013.” It also revised its cash flow assumptions, and is now forecasting that Nokia’s net cash will fall to less than EUR3 billion by year-end 2012 (including cash restructuring outflows).
The other two main ratings agencies, Moody’s and Fitch, both downgraded Nokia last month.
In a response to the action, Nokia’s CFO Timo Ihamuotila said the impact of S&P’s downgrade on the company would be “limited,” and reaffirmed Nokia's “strong focus on cash conservation.”
“We ended the second quarter 2012 with gross and net cash both higher than a year earlier," he said. "With gross cash of EUR 9.4 billion and net cash of EUR 4.2 billion, we have a strong financial position and robust liquidity profile.”
He noted that Nokia also has access to additional liquidity via a revolving credit facility of EUR1.5 billion, which is available until 2016 and is yet untapped.
Nokia announced separately that it is planning to hold a joint media event with Microsoft in New York on 5 September, one week before the anticipated unveiling of the new iPhone. Although the invite makes reference to 'Nokia Maps,' it is expected that the event will also see Nokia launch new Windows Phone 8-powered Lumia smartphones.
"I don't think about rewinding the clock and thinking about competing elsewhere," CEO Stephen Elop told reporters in Oslo this week, reports The Guardian. "In today's war [between] Android, Apple and Windows, we are very clear, we are fighting that with the Windows phone."
Looking ahead, S&P said that Nokia's revenues could stabilise in 2013 if the Lumia line begins to “offset the revenue decline from smartphones using the Symbian operating system and, to a lesser extent, from mobile phones.” However, it forecast that Nokia would post a low single-digit non-IFRS operating margin in 2013.