Ina Fried

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Moody’s Downgrades Nokia Over Concerns About Transition Pace

Bond ratings firm Moody’s on Thursday said it was cutting its rating on Nokia’s debt by one notch, expressing concerns about the company’s weakened market position and the financial impact as it adopts Microsoft’s Windows Phone operating system.

“The rating downgrade primarily reflects Nokia’s weakened market position in its core business, mobile devices, which has reduced the company’s margins and funds from operations,” Moody’s analyst Wolfgang Draack said in a statement.

However, Moody’s also expressed concern about how the company’s business will weather its transition to Windows Phone as the primary smartphone operating system. Nokia has said that at best it will have its first Windows Phone model out late this year and that it expects all of this year and next to be “transition years.”

Moody’s also lowered its ratings outlook for Nokia to negative, saying even the lowered rating assumes that Nokia can maintain a cash-flow-neutral position. However, it said it hasn’t lowered Nokia’s rating further at this point because of its large business and the overall industry growth of the smartphone industry and Nokia’s strong balance sheet, among other reasons.

Plus, the company will also be getting billions of dollars in support from Microsoft in the coming years.

Still, Nokia is counting on continued sales of Symbian-based smartphones for quite some time, though clearly it will face the challenges of waning developer and enthusiast interest in a platform that has been marked for eventual extinction.

Its forecast calls for a further 150 million Symbian-based phones to be sold in the coming years, even as the company shifts much of its development efforts to Windows Phone. Nokia just introduced a version of its Symbian-based C7 phone for T-Mobile USA and is planning to announce the latest efforts to improve on Symbian in a webcast on Tuesday.