S&P Downgrades Nokia

Handset giant's corporate credit rating goes from 'A' to 'A-'

March 31, 2011

2 Min Read

FRANKFURT (Standard & Poor's) March 30, 2011--Standard & Poor's Ratings Services said today it lowered its long-term corporate credit rating on Finland-based mobile telecommunications equipment manufacturer Nokia Corp. to 'A-' from 'A'. In addition, we affirmed the 'A-1' short-term rating. We removed all ratings from CreditWatch, where they were placed with negative implications on Feb. 1, 2011. The outlook is stable.

"The downgrade reflects the revision of our business risk profile assessment on Nokia to "satisfactory" from "strong", primarily because we expect that Nokia's smartphone portfolio will make further significant market share losses during 2011 and 2012 until it has completed its adoption of Microsoft's Windows Phone software as its new primary software platform for smartphones," said Standard & Poor's credit analyst Matthias Raab.

Although we believe that the broad strategic partnership between Nokia and Microsoft Corp. (AAA/Stable/--) could help Nokia to improve the currently weak competitive position of its smartphone portfolio over the medium term, over the transition period we forecast that the company will report only broadly flat revenues compared with 2010 and mid to high single-digit operating margins after restructuring costs in its Devices & Services segment.

We base this forecast on our assumption that Nokia's existing Symbian-based smartphone portfolio will face heavy competitive price pressure, that Nokia will have to make meaningful royalty payments to Microsoft from 2012, and that the company will face high restructuring costs to adjust research & development (R&D) resources due to the shift to Windows Phone–R&D expenses totaled €2.9 billion, or 10% of revenues, in 2010. We expect these factors to be only partly offset by significant industry smartphone volume growth and substantial marketing and sales support from Microsoft. We also assume that Nokia will generate sustainable revenues and solid margins from traditional mobile phones despite continued fierce competition.

Standard & Poor’s

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