Fitch Downgrades Nokia

Jul 20, 2012
J. Webster
Comments Off on Fitch Downgrades Nokia

You’d think this was some kind of joke. Fitch coming in and downgrading Nokia’s credit rating from a BB+ to a BB-. Why not just make it a big fat F-.

And Fitch is saying further downgrades could come for Nokia if can’t stop losing money and people don’t buy their new smart phones. Well, Fitch, you’re a little late to this party, Nokia (NOK) is trading for 1.70 a share as I right this, down over 8% just today. The question is will Nokia exist as a company in the months to come.

Nokia’s €4.2 billion ($5 billion) net cash position is strong and currently supporting the rating, but it is expected to be significantly eroded by restructuring charges over the next two years, Fitch said Friday, also noting that its operating margins fell in the second quarter from the first.

“If these operational losses are not reversed, the support that the cash cushion gives the rating is going to be eroded faster, which could lead to further downgrades,” Fitch said.

Nokia doesn’t seem to have the products in its portfolio to stem the recent losses, Fitch said, adding that tough competition in the industry will probably make it hard for the Finnish company to re-establish a significant presence in the smartphone market.

“If Fitch does not believe that Nokia is capable of stabilizing the revenue declines and halting the operational cash burns at some stage in 2013, then further negative rating action could be taken,” it added. (WSJ)

Here’s a ten year chart of Nokia. Yes, in 2007 Nokia traded for nearly $40 a share.

But what jumps out even more about the failure of Nokia is this little tidbit:

“It spent $40 billion on research and development over the past decade, almost four times what Apple spent over the same period.” (Reuters)

Yeah, that’s a lot of money to waste and not have anything to show for it. Heck, the market capitalization for Nokia is now only $6.35 billion.

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