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Moody's downgrades Nokia rating to junk status

The cellphone maker plans to cut 10,000 jobs by the end of next year, close facilities and restructure the business as sales drop 16% in the first quarter.

June 16, 2012|By Tiffany Hsu, Los Angeles Times
  • Nokia is the largest manufacturer of mobile communications devices in the world, according to Moody's. But manufacturers of low-end phones and promotions from Chinese carriers are encroaching on its position. Above, the Nokia research center in Ulm, Germany.
Nokia is the largest manufacturer of mobile communications devices in… (Stefan Puchner, European…)

Nokia Corp., the faltering Finnish cellphone maker, closed out the week with another hit to its financial condition: Moody's Investors Service downgraded its credit rating to junk status.

Moody's cut the company's rating a notch to Ba1, a non-investment grade level, from Baa3. Moody's was the last of the three major credit ratings firms, after Fitch Ratings and Standard & Poor's, to reduce Nokia's credit to junk status.

On Thursday, Nokia said it would slash 10,000 jobs worldwide by the end of next year, shut down several research and manufacturing facilities and restructure the business. The layoffs are in addition to the reduction of 14,000 jobs announced last year.

The company is the largest manufacturer of mobile communications devices in the world, claiming a third of the global market, according to Moody's.

But the ratings company had a negative outlook for Nokia, warning in a report that the company's "structural challenges ... may not be easy to address."

Sales volume of its mobile phones fell 16% in the first three months this year from last year's first quarter, resulting in a 35% drop in revenue for its biggest unit, the company said earlier this week.

Moody's said the drop in revenue may not be the last "precipitous decline" for Nokia as manufacturers of low-end phones and promotions from Chinese carriers encroach on its position.

The company also is struggling to switch its Lumia smartphone to Microsoft Corp.'s Windows-based technology from the Symbian operating system.

Nokia is becoming increasingly dependent on its Lumia line, which it had anticipated would challenge the leaders, Google's Android products and Apple's iOS offerings.

What Nokia does next with Windows 8 and future products is "crucial," according to a separate statement Friday from Fitch.

For now, the company seems headed toward "a precarious combination of a depleted cash balance without an end in sight to the declining cash flows," Fitch wrote.

"Although the cost-cutting provides some relief, ultimately the company needs to demonstrate that its products are attractive to consumers and can enable it to win back market share."

Nokia shares, which lost 16% Thursday, gained 13 cents, or 5.5%, to $2.48 Friday.

tiffany.hsu@latimes.com

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