Fitch Slashes Nokia's Debt Rating To Lowest Grade

More bad news for Nokia - influential credit ratings agency Fitch Ratings has slashed the Finnish firm's debt rating to the lowest investment grade - BBB with a negative outlook - mainly because of the falling share of Symbian handsets.

Focal Points:

• The other main credit services, Standard & Poor's and Moody's, have both reduced Nokia's ratings this year, both to the seventh step on their scale (A- for S&P and A3 for Moody's). Last week Nokia issued a dire profit warning and tore up its forecasts for the year, as it battles to sustain Symbian as it tries to survive the long transition to WP7 as its key platform.
• "The downgrade and negative outlook reflect the serious concerns Fitch has about the accelerating pace of the market share erosion for Nokia's Symbian handset business," Fitch analyst Stuart Reid said. "The pace of deterioration has picked up since Nokia decided to switch to an alternative operating system." He is looking for more reliable margins and "a degree of sustainable profitability", as well as a strong WP7 launch, before he would expect to upgrade Nokia's outlook to 'stable'. None of these criteria is likely to be met until the end of 2011 at the earliest.


• The factors in Nokia's current decline are well known - its smartphone market share has halved, from over 50% at the launch of the iPhone in mid-2007, to 25.5% in the first quarter of 2011; its stock has lost about 75% of its value since that same watershed moment; and in Q111 Nokia was overtaken by Apple as the largest handset maker by revenue. Companies have come back from worse, and Nokia still has weapons at its disposal, such as its brand power and distribution in emerging markets. But it cannot build on any of its advantages at the high end until it has a WP7 device, and a convincing one at that, and the wait may prove too long. 



This hiatus period while Nokia prepares for WP7 "places an uncomfortably long phase of pressure on the existing handset business and raises the specter of further cashflow deterioration and increased leverage metrics beyond the end of 2011," Fitch said, as quoted in Bloomberg.