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Nokia defiant after second ratings downgrade
April 25, 2012
Nokia yesterday defended its financial performance, as Fitch Ratings became the second credit agency in as many weeks to downgrade the vendor’s stock to junk level.
Executive vice president and CFO, Timo Ihamuotila, pointed to the firm’s strong cash balance and net cash position during 1Q12, and said management is working fast to position the company for future growth. He was responding to what Nokia calls an ‘unsolicited’ move by Fitch to downgrade the vendor’s Long-term Issuer Default Rating (IDR) and senior unsecured rating from BBB- to BB+, with a negative long-term outlook.
"We are quickly taking action to position Nokia for future growth and success. Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position,” Ihamuotila said.
While Fitch agrees Nokia’s €9.8 billion ($12.9 billion) cash hoard is currently strong, it speculates that cash may quickly be eroded over the next 18 months due to recurring charges, and the potential for continuing negative operating cash flow if the vendor’s financial performance doesn’t improve. The ratings firm is also concerned about the 40% drop in revenue at Nokia’s devices business during 1Q, and lack of visibility beyond the current quarter – for which Nokia predicts negative operating margin.
Fitch’s move comes a little over a week after rival credit agency Moody’s also downgraded Nokia over similar concerns.
At the time Malik Saadi, senior analyst with Informa Telecoms & Media, warned the downgrade could weaken Nokia’s “innovation engine and affect its competitive ability.” He cautioned the vendor may become a target for a “possible acquisition at a cheap price,” if its financial performance does not improve.