Nokia faces more than simple criticism; a ratings battle

Nokia continues to be the whipping boy for numerous commentators--albeit having made itself an easy target.

Its flagship N8 handset is being roasted for power-related problems, its JV with Siemens--Nokia Siemens Networks--has failed to generate any interest from potential investors, counterfeit Nokias are not being stopped by UK customs authorities and, to finish a bad week, Apple co-founder Steve Wozniak labelled Nokia as a throwback from "a previous generation".

Putting to one side this last observation due to possible bias, the company should be able to ride these minor PR problems with consummate ease.

What it might find more difficult to correct or hide is the downgrading of its debt rating by Fitch.

Specifically, the ratings company has downgraded Nokia's Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB+' from 'A-'. The Short-term IDR of 'F2' is affirmed. The outlook on the Long-term IDR is Negative.

Fitch rationalised this downgrade due to the increasing pressure faced by the company on a number of fronts. It believes that Nokia's core handsets position is facing increased competition in both the high-end smartphone segment in mature western markets as well as lower-end emerging markets like China and India; markets which have traditionally been strengths for Nokia.

The firm has estimated that Nokia's overall handset share fell to 28 per cent in the third quarter of this year, down from 37 per cent a year previous. This is not helped by the Symbian OS which managed a market share of smartphone sales of 36.6 per cent in the third quarter, compared with a dominant 44.6 per cent a year earlier.

On the upside, Fitch recognises that Nokia is currently the largest volume producer of handsets and can expect to retain a strong market position. The firm also accepts that Nokia's financial metrics are strong, and if the management is able to steady or even reverse the negative operating trends, then Fitch is likely to stabilise the outlook at the current BBB+ level.

While these judgements might not feature widely in the consumer press, Nokia will need to show signs that it is capable of a real revival to those that closely monitor the financial markets. -Paul

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