Nokia of Finland, still whimpering and licking its wounds after being unceremoniously booted off the top spot as the worlds biggest maker of mobile handsets by Samsung of Korea, got another kicking on Friday afternoon when the ratings agency Standard & Poor's cut the company's credit rating for the second time in a week. Martyn Warwick reports.
S&P cut Nokia's rating from BBB- to BB+, downgrading the company's stock from one "non-investment" level to a lower one and making it even harder for the handset maker to recover. The new BB+ rating means powerful institutional investors such as pension funds will shun Nokia shares because they are now classified as certifiable risks - and so the spiral of decline continues with yet more downgrades not just a possibility but downright likely (and probably inevitable) in the months to come.
Earlier this month, Nokia's shares hit a 15-year low of €2.60 and are still scraping along the bottom as markets and investors fret about falling sales and the continuing lack of a coherent product strategy.
S&P commented that its second downgrade in less than seven days reflects its continuing and deepening negative attitude to Nokia stock and is worried that the 18 per cent fall in mobile handset sales the company experienced in 2011 could be repeated and even exceeded in 2012.
S&P says the only way Nokia can remedy the situation and rebuild towards the copper-bottomed rating status it enjoyed during its glory years is for it to stabilise and then increase revenues in its embattled Devices and Services arm, cut back quickly and drastically on its cash spending (Nokia has a huge cash pile of €4.9 billion but is beginning to burn through it as problems mount) and increase its profit margins.
Standard & Poor's decision came just days after another ratings agency, Fitch, also consigned Nokia stock to the "junk" heap.
Nokia has yet to respond officially to S&P's decision but when, a few days ago, Fitch swung the ratings axe, this statement came from Espoo; “As we have detailed in recent announcements, Nokia is in the middle of a transformation program which encompasses every aspect of our business. We are implementing a decisive action plan to position our company for future growth and success. The main focus of these actions is on lowering the company’s costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market.”
Expect Timo Ihamuotila, Nokia's CFO, to trot out the same set of cliches/arguments excuses/ reasons when the company gets around to commenting on S&P's latest onslaught.
Meanwhile, a browse around various websites shows that there's a full-scale Nokia/MS PR assault underway as far as the Lumia 900 handset is concerned with PR agencies trying to whip up a froth out of very little.
Take this for example, "Online tech site Gizmodo recently reported the results of interviews they conducted with 36 different AT&T retail locations located across the country [in this case, the US]. The majority of those stores reported selling out of all their available Nokia Lumia 900 handsets within days of their initial rollout. That handset is still in plentiful stock at multiple online locations however, and online retailing giant Amazon is currently offering the handset for [US]$49 with a standard new two-year activation agreement."
A journalist's riposte to this sort of bugle oil is to ask, "which stores, where, when, how many devices were sold, how many were in stock, and, was the stock at these no doubt carefully chosen retail outlets kept deliberately low to create rumours of a handset shortage?".
When these details are provided and the numbers stocked and sold can be verified, the media might believe them. Until then, journalists would be fools to swallow such vacuous hype. As would the public.
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