News

Nokia's Credit Rating Downgraded to 'Junk'

• By Kurt Mackie
• April 30, 2012

Nokia, which early last year made the decision to shift its business model to center on Microsoft's Windows Phone mobile operating system, had its credit rating downgraded on Friday.

According to Reuters, Standards & Poor's cut the Finland-based smartphone maker's credit rating to "junk" status, marking it as risky for investors. The move follows a similar downgrade by Fitch Ratings.

In response to S&P's credit rating assessment, Nokia Executive Vice President and Chief Financial Officer Timo Ihamuotila said that Nokia is in the midst of transforming its business.

"As we have detailed in recent announcements, Nokia is in the middle of a transformation program which encompasses every aspect of our business," Ihamuotila said in a released statement. "We are implementing a decisive action plan to position our company for future growth and success. The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market."

The new products Nokia is spearheading are based on Microsoft's Windows Phone operating system with its "Metro-style" user interface. The company deemphasized its own former market-leading Symbian mobile OS platform to push out its Lumia Windows Phone OS-based product line.

Nokia even hopes to get a better toehold in the U.S. market by adopting Windows Phone. Earlier this month, AT&T announced the availability of the Nokia Lumia 900 running the Windows Phone 7.5 OS for $99.99 for use across AT&T's LTE wireless network.

Nokia's connection with Microsoft extends to its CEO. Nokia hired Stephen Elop, formerly the head of Microsoft Office operations, to serve as Nokia president and CEO about a year-and-a-half ago. In a "burning platform" memo, Elop warned that Nokia had to respond acutely to its sinking platform problems. Shortly thereafter, Nokia and Microsoft signed an agreement on Windows Phone software integration.

Former Nokia senior vice president, Lee Williams, who oversaw Nokia's Symbian operations, recently critiqued Elop. According to a CNET story, Lee said that Elop has just focused on cutting costs without paying enough attention to the company's future business prospects.

Analyst firm Strategy Analytics announced this month that Samsung had surpassed Nokia to become the world's largest handset vendor, based on Q1 2002 data. Samsung has 25 percent of the world's handset market, followed by Nokia at 22 percent and Apple at 9 percent, according to Strategy Analytics.

"Nokia's global handset shipments declined a huge 24 percent annually to 82.7 million units in Q1 2012," said Neil Mawston, executive director at Strategy Analytics, in a released statement. "Volumes were squeezed at both ends, as low-end feature phone shipments in emerging markets stalled and high-end Microsoft Lumia smartphones were unable to offset the rapid decline of Nokia's legacy Symbian business. Nokia was the world's largest handset vendor between 1998 and 2011, for 14 years, before finally yielding top position to rival Samsung this quarter."