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Nokia fails to maintain Moody's 'junk' status

Questions over Windows Phone remain
Mon Jul 23 2012, 16:34
Nokia Lumia 610 running Windows Phone Tango

FINNISH PHONE MAKER Nokia couldn't even hold onto the junk status bestowed upon its debt by ratings agency Moody's, being dropped to Ba3.

Nokia's well documented woes in the smartphone market have in the past two years finally caught up with the firm's bean counters with repeatedly poor financial results. Now Moody's, one of the three major credit rating agencies, has further downgraded Nokia's debt to Ba3 even though it was already 'junk' status.

The reason for Moody's further downgrade was explained by Wolfgang Draack, an SVP and lead analyst for Nokia at Moody's who said, "Today's rating action reflects our view that Nokia's transition in the smartphone business will cause deeper operating losses and consequently cash consumption in the coming quarters than we had previously assumed. A return to profitability in the Devices & Services segment on the back of smartphones with the Windows Phone 8 mobile operating systems is by no means assured."

Nokia's insistence to go down the Windows Phone route still doesn't make sense over a year after CEO Stephen Elop announced the decision. With companies such as Samsung, HTC, ZTE and Huawei all betting big on Google's Android operating system and surpassing Nokia's efforts with its Lumia range, even analysts are growing increasingly aware of the operating system's likely inability to save Nokia.

Nokia issued a statement playing down the significance of Moody's downgrade. It said, "While we are disappointed with Moody's decision, its impact on the company is limited. We are quickly taking action to position Nokia for future growth and success. Nokia will continue to focus on lowering the company's cost structure rapidly, improving cash flow and maintaining a strong financial position."

Moody's latest rating cut is a further embarrassment for Nokia, but from an investment point of view all three credit rating agencies had already reduced it to junk status, meaning not investment grade. But Moody's latest cut is yet another signal that the financial industry is losing faith in both Nokia and Microsoft's Windows Phone mobile operating system. µ


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