Nokia's credit rating cut on margin, NSN concerns

Fitch Ratings cut its rating on Nokia's long-term debt slightly, citing concerns about the company's handset margins as well as its exposure to its infrastructure joint venture, Nokia Siemens Networks.

The ratings agency cut Nokia's long-term debt rating to A-, down from A, and said its outlook on Nokia's debt was stable. "Fitch is concerned that the growth market of smartphones is highly competitive," the agency said in a statement, noting that smaller players such as Apple and Research In Motion "have already established strong product positions." Fitch said Nokia's sluggish margins at its devices and services business are unlikely to return to past levels.

Nokia had an adjusting operating margin of 7 percent through the first nine months of the year, down from 15.2 percent a year ago. The devices and services unit had margins of 11.4 percent, down from 18.6 percent.

Fitch also voiced worries about Nokia Siemens. In the third quarter, NSN's sales slumped 21 percent to $4.16 billion. The company had an operating loss of $1.64 billion in the quarter, compared with an operating loss of $1.48 million in the year-ago quarter. Fitch said NSN is now projected to post "considerably weaker" earnings than anticipated at the time of the merger in 2007.

Nokia recently has taken several steps to address such concerns, including cutting research and development staff, shuttering several retail outlets and installing new leadership at several key divisions. Earlier this month at its annual investor conference, the company said it will improve the user interface on Symbian, its core smartphone platform. Nokia also promised to deliver a "major product milestone" before mid-year in 2010, and another one by the end of 2010, though it didn't provide details.

Likewise, Nokia Siemens has signalled efforts at a turnaround. In November, the company said it may cut as many as 5,760 jobs as part of a broad restructuring and cost-cutting program. Additionally, NSN is looking to reduce expenses and procurement costs and will streamline its business structure.

For more:
- see this Bloomberg article
- see this MarketWatch article

Related Articles:
Nokia, Siemens pledge support for NSN
NSN may cut nearly 6,000 jobs
Nokia to halve smartphone range, close flagship store
Nokia expects handset market to grow 10% in 2010

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