April 27, 2012 / 11:37 AM / 8 years ago

TEXT-S&P cuts Nokia To 'BB+/B'; outlook negative

(The following statement was released by the rating agency)

Apr 27 -

Overview

— Finland-based mobile telecommunications equipment manufacturer Nokia Corp. reported a 29% quarterly decline in sales and negative margins at its Devices and Services division in the first quarter of 2012, and gave guidance of “similar or below” for the division’s margin in the second quarter.

— We now expect Nokia to report significantly lower margins and cash flows in 2012 than we had previously expected.

— We are lowering our long-term corporate credit rating on Nokia to ‘BB+’ from ‘BBB-‘ and our short-term rating to ‘B’ from ‘A-3’.

— The outlook is negative, reflecting the possibility of a further downgrade if Nokia fails to stabilize revenues and margins and significantly cut its cash losses.

Rating Action

On April 27, 2012, Standard & Poor’s Ratings Services lowered its long-term corporate credit rating on Finland-based mobile telecommunications equipment manufacturer Nokia Corp. to ‘BB+’ from ‘BBB-‘ and its short-term corporate credit rating to ‘B’ from ‘A-3’. The outlook is negative.

At the same time, we lowered our issue ratings on Nokia’s unsecured debt to ‘BB+’ from ‘BBB-‘ and assigned recovery ratings of ‘3’ to this debt, reflecting our expectation of meaningful (50%-70%) recovery prospects in an event of payment default.

Rationale

The rating action reflects a downward revision of our expectations for revenues from Nokia’s Devices and Services division in 2012 and a subsequent revision of our profitability and cash flow assumptions.

We now believe that revenues from the Devices and Services division could decline in 2012 by the same extent as in 2011 (minus 18%) after Nokia reported first quarter 2012 revenues below our expectations, particularly for Symbian-based smartphones. We still expect revenue from Lumia smartphones to grow over time but not sufficiently to offset a rapid decline in revenue from Symbian-based smartphones over the next few quarters. We believe the volume market share of the smartphone operations could decline below 10% (from 12.6% in the fourth quarter of 2011 according to market research company Strategy Analytics), although smartphone revenues in absolute terms could start rising by the end of 2012, contributing to a stabilization of revenues in the Devices and Services division toward the end of 2012 or the beginning of 2013. Furthermore the mobile phone operations’ revenues in the first quarter of 2012 fell by 32% year-on-year. Nokia’s strong position in this segment could weaken further, especially in China and India, where demand has been significant for low-price smartphone-like devices, a segment where Nokia currently lacks competitiveness. We understand that Nokia intends to launch new devices to close the gap in this segment but we expect competition from manufacturers of low-price devices to intensify and we have slightly revised our volumes and price assumptions for the mobile phone operations.

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