Amidst concerns of fading profitability and an inability to stay relevant in an ever-changing mobile market, rating agency Standard & Poor’s downgraded Nokia’s long term credit rating from BB+ to BB-. Although both grades are considered “junk status” by the ratings company, by dropping Nokia two notches S&P is indicating that the Finnish company “faces major ongoing uncertainties to adverse business, financial, and economic conditions.”
This news certainly doesn’t bode well for Nokia, who has perpetually struggled to compete in the smartphone market, as an even lower junk status rating will surely drive away more investors, and thus make it considerably more difficult for Nokia to raise the necessary capital to keep producing failing phones.
The bad news doesn’t stop there for Nokia however, as an unsurprising prediction from market analyst firm Gartner of a slowdown in the global feature phone sales in the second half of this year likely has many in the Nokia camp wondering if this is truly the beginning of the end.
If you’re wondering what a downgraded rating from Standard & Poor’s Ratings Services really means to a company, it has everything to do with investor confidence. For S&P, any rating below a BBB- is considered “junk status,” or not investment grade material. By its standards investing in a company like Nokia is risky business, and while some investors like a challenge, for the most part the lowered rating means that investors will stay away from such a speculative investment.
In addition to lowering Nokia’s long term credit rating, S&P also lowered the rating for the company’s unsecured debt, saying that the company’s quarterly results have continued to be lower than expected.
“The negative outlook reflects the possibility of another downgrade if Nokia fails to stabilize its margins and significantly cut its cash losses,” the agency said. “We now assume that Nokia’s smartphone operations will post lower revenues than we previously anticipated over the coming quarters.”
While Nokia has clearly been struggling of late, the Finnish firm explains the downturn as simply difficulties associated with transitioning away from its former Symbian and MeeGo mobile platforms and the fact that it has only released one series of Windows powered smartphones.
Whatever spin Nokia puts on the situation, however, it doesn’t change the fact that the company has still found absolutely no answer for Apple and Samsung, the Finnish company having watched its once entrenched position atop the mobile mountain usurped by those two tech giants. If the company’s Windows phones are to present some sort of credible market threat, its going to take some time and some patience, neither of which Nokia really has.
To that end, the mobile market was also hit with the news that the global feature phone market is slowing, as emerging markets prepare for the introduction of the smartphone. This too comes as a difficult news for Nokia, as it has depended on its high volume of feature phone sales to keep itself going throughout its ongoing smartphone fiasco.
In the end I have to think that Nokia is almost assuredly standing at a crossroads, in one direction the long road back to relevance, in the other the slippery slope towards disaster. This sentiment is echoed by S&P, who believe that Nokia has a 50 to 70 percent chance of righting its sinking ship, a chance that seems to be getting lower and lower by the day.