Cash Concerns Lead To Another Credit Rating Downgrade For Nokia

Finish telecommunication giant Nokia sure is going through the most interesting of times. When it comes to mobile phones, the company is offering products that target all price ranges, from inexpensive feature phones to the Asha range and the Lumia smartphone lineup.

And the results have translated financially too, with Nokia posting strong numbers these past few quarters. Still, it seems that the numbers are not strong enough.

The company faces very aggressive competition from other smartphone vendors. And it is this sustained and relentless pressure that Nokia is facing in its devices businesses is becoming a major worry for investors and lenders.

A leading ratings agency Standard & Poor’s (S&P) has downgraded Nokia’s rating from BB- to B+ amid concerns over the company’s financial health and in particular, its cash reserves.

The agency defines this rating as more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments. In other words, the situation si not calamitous or disastrous, but it is a bit frightful.

Through all this, Nokia, nevertheless, remains boldly defiant. The company’s executive vice-president and chief financial officer, Timo Ihamuotila, in a statement after today’s S&P downgrade said:

“With a strong positive gross and net cash position, Nokia was able to take advantage of an opportunity to fully own Nokia Siemens Networks and, we believe, create meaningful value for Nokia shareholders. We will continue to prudently manage our cash resources post-transaction.”

Nokia actually announced earlier this week its plans to buy out its partner in the Nokia-Siemens Networks (NSN) joint venture for $2.2 billion. S&P believes that this move plus the continued difficulties in the device business could put a considerable strain on Nokia’s cash pile.

So much so that Nokia’s net cash could be as low as $1.67 billion by the end of 2013.

All this raises the question about how much worse things can get for Nokia before they get better. Recent reports suggested that Microsoft held advanced talks with Nokia to negotiate terms for acquiring its handset division, but the discussions crumbled on a disagreement over price.

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