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Fitch cuts Nokia's credit rating to lowest investment grade
FLOUNDERING FINNISH PHONE FIRM Nokia has suffered the ignominy of having its credit rating cut again by Fitch.
Nokia has been in a world of hurt these past couple of years, with almost every market analyst report suggesting that its market share has fallen off a cliff, and now it has had its credit rating cut to the lowest investment grade, BBB-minus, by the investment ratings agency Fitch.
The announcement means that Nokia will find it harder to raise capital, as large institutional investors, in theory at least, prefer A-grade investments. Even if it's not a big problem for Nokia in its day-to-day business, it's a clear indication that the financial industry doesn't view Nokia in a very positive light at the moment.
Fitch's investment rating is meant to be used as long-term investment guide, and as such this downgrade casts doubt over the credibility of Nokia's future prospects with Windows Phone devices. The fact is that Nokia is betting its future on an operating system that no one has seen yet, while its rivals like Sony Ericsson have credited Android for changing the fortunes of their businesses.
Stuart Reid, an analyst at Fitch, said that Nokia's Windows Phone range "places an uncomfortably long phase of pressure on the existing handset business and raises the spectre of further cash flow deterioration and increased leverage metrics beyond the end of 2011". Perhaps that window will be just long enough for Microsoft to come in and mop up what's left of Nokia.
This isn't the first time that Nokia has seen its credit rating downgraded. Ratings agencies Moody's and Standard and Poor both downgraded Nokia earlier this year, but Fitch's rating is a new low for the Finnish firm. Any further downgrades by Fitch will make the firm a non-investment grade risk, or what is commonly known in investor circles as 'junk'. µ
Tags: Hardware
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Any more "business partners" want the Microsoft Kiss Of Death?
"The announcement means that Nokia will find it harder to raise capital, as large institutional investors, in theory at least, prefer A-grade investments."
Actually, the biggest problem that this creates for Nokia is that it will cost them MORE to borrow money, as the higher risk investments require a higher rate of return to investors. Any investor would prefer the higher rate, its just how much risk do you want to take to get it.
Unless, of course, you go and buy bonds for a union company like Chrysler, and have the US govt turn bankruptcy law upside down as payback for the union political support. With that type of scenario, there is no such thing as "risk", it gets replaced by the more modern concept of "bend over" investing.