Nokia has received a second blow from the financial community, with credit rating firm Fitch downgrading the Finnish cellphone manufacturer to “negative” after its lackluster Q1 2012 results. Fitch joins Moody’s – which downgraded Nokia earlier in the month - in warning investors that the outlook for the firm isn’t good; “given the potential headwinds facing [Nokia]” the financial firm says, “Fitch is currently not convinced that Nokia can attain [stabilized revenues and single-digit profit margins] over the course of 18 months.”
As a result of the lacking confidence, Fitch has dropped Nokia’s investment grade rating to BBB-, with the outlook negative. “Nokia’s profile is no longer commensurate with an investment grade rating” it argues. “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.”
Those factors include a continued slump in the featurephone business that has been dwindling faster than expected in developing markets, “only partial success” of the Lumia line-up, and more losses at Nokia Siemens Networks (NSN).
Nokia has already responded to the downgrade, with CFO Timo Ihamuotila proving defiant despite the lack of confidence. ”We are quickly taking action to position Nokia for future growth and success” Ihamuotila insists. “Nokia will continue to increase its focus on lowering the company’s cost structure, improving cash flow and maintaining a strong financial position.”
The CFO also points to Nokia’s cash stockpile as evidence of stability, though Fitch isn’t convinced that a bulging back account today will be enough to ensure success tomorrow. “Although this net cash position is currently strong,” the agency says, “this could be depleted over the next 18 months by substantial restructuring charges and the potentially negative operating cash flow that could persist unless the company’s operating performance improves.”