Credit rating agency Moody's has downgraded its rating on Nokia to its lowest investment grade, in the wake of the company's announcement of a slump in Q1 handset sales.
Moody's cut Nokia's senior debt rating to Baa3 with a negative outlook from Baa2, and also downgraded the company's short-term debt ratings.
The agency said the downgrade was triggered by Nokia's announcement of a 16% year-on-year decline in handset sales for the first quarter, a slump which Moody's branded “severe.”
This resulted in a 35% slump in revenues from Nokia's handsets segment during the quarter.
“While volatility by quarters is not uncommon, Moody's believes that the structural challenges facing Nokia's mobile phones segment may not be easy to address, such as the market share gains recorded by makers of very low-end phones or new phone promotions by Chinese carriers,” the agency said in a statement.
Moody's added that Nokia's transition from Symbian-based smartphones to Windows Phone with the Lumia series is “ proving more challenging than expected given that sales of Symbian-based devices are falling off very quickly while Lumia sales are only ramping up slowly.”
But the agency noted that Nokia has maintained a strong liquidity position and capital structure, with cash and marketable securities amounting to around twice the company's debt.
Responding to the downgrade, Nokia said in its own statement that the company is making progress with plans to cut operating expenses at its devices and services business by more than €1 billion ($1.31 billion), and operating expenses and production overhead at subsidiary NSN by a further €1 billion.
"Nokia is quickly taking action [and] will continue to increase its focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position,” CFO Timo Ihamuotila said.
Q1 is also thought to be the first quarter in 14 years that Nokia was outsold in terms of handset units. A number of analysts expect Samsung to have dethroned Nokia in terms of shipments during the quarter.