Fitch has delivered a blow to Finnish phone maker Nokia’s credit rating after it downgraded to “junk” due to relatively poor earnings in Q1 2012.
The global ratings agency gave a low BB+ rating from BBB-, which reveals the worsening core Devices and Services division in Q1, including the overall lack of visibility in the phone maker’s short-term future. Fitch also gave negative outlook rating for Nokia, which reflects high chances of other future downgrades.
In order to avoid further negative rating action, Nokia needs to demonstrate substantial improvements over Q312, Q412 and 2013.
The launch of the new Lumia phone with AT&T, and the potential launch of new Nokia products later in the year, could be positive for Nokia’s credit profile. However, there are also numerous negative potential factors which could delay or fully impede a recovery.
These could come from further dramatic declines in Nokia’s low-end smartphone and feature phone business, further losses at NSN, or only partial success of the Lumia product range that does not compensate fully for the declines in the rest of the business.
Timo Ihamuotila, Nokia’s EVP and CFO, defended the company’s financial situation, saying,
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.
The news is hot on the heels of downgrades for Nokia from other ratings companies last week.