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Nokia's Moody's Blues

5:40 PM -- Just when it looked like things couldn't get worse for Nokia Corp. (NYSE: NOK), Moody's Investors Service on Monday downgraded Nokia's debt to just one notch above junk status (that is, Baa3 with a negative outlook), which was triggered by Nokia's profit warning last week. (See Nokia's Nightmare Scenario and Nokia Dives on Lowered Device Outlook.)

The downgrade follows a similar move by Standard & Poor’s in March. (See Euronews: S&P Downgrades Nokia Debt and Euronews: Nokia Nearly Junk.)

According to Moody's statement, the firm "believes that the structural challenges facing Nokia's Mobile Phones segment may not be easy to address, such as the market share gains recorded by makers of very low-end phones or new phone promotions by Chinese carriers. This precipitous decline is of particular concern considering that Nokia's Mobile Phones segment was still the core income generator for the Nokia group in 2011, when it contributed €1.5 billion to the group's operating profit of €1.8 billion."

As for Nokia's high-end gadget business, Moody's is also concerned that sales in Symbian-based smartphones are falling faster than Windows Phone-based Lumia devices are ramping up.

But there's another force at work in Moody's rationale: Nokia Networks . The ratings firm said Nokia might have to contribute more capital and funding to Nokia Siemens, "if [NSN]'s restructuring cost starts to exceed cash flow from operations." (See NSN to Cut 17,000 Staff, NSN to Restructure and NSN Unveils Its Kill List .)

In response to the downgrade, Nokia defended its cash position. Nokia CFO Timo Ihamuotila said in a statement: "Nokia is quickly taking action. Nokia will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position." (See Nokia Comments on Moody's Downgrade.)

Nokia needs to elaborate soon on what action it's taking. This Thursday, April 19, could be the day for that, as the company reports first-quarter results.

CEO Stephen Elop said earlier this year that "we are changing the clock speed of Nokia." Whatever that is, it's not fast enough yet.

— Michelle Donegan, European Editor, Light Reading Mobile

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