S&P Downgrades Nokia Over Dwindling Smartphone Share

Standard and Poor's downgraded mobile phone giant Nokia's rating by a notch, blaming especially the Finnish company's difficulties in defending its smartphone market share.

S&P cut Nokia's long-term corporate credit rating to BBB- from BBB, with a negative outlook "reflecting the possibility of a further downgrade in the next two years," if the company's margins remain too weak and its cash holdings decrease too much, the ratings agency said in a statement.

"The rating action reflects limited earnings visibility in Nokia's smartphone sub-division," S&P said, adding that this in turn had led it to revise down its assessment of the company's profitability and cashflow in 2012.

Nokia meanwhile stressed that the ratings agency had highlighted its "conservative financial policy, strong balance sheet and very robust liquidity position," and insisted: "S&P's rating action will not have a material impact on our current financing costs."

The news did not appear to scare off investors either: Nokia's share price was trading up 0.36 percent in afternoon trading on a Helsinki stock exchange down 0.05 percent.

In 2011, the world's biggest mobile phone company posted a net loss of $1.5 billion, with a full $1.4 billion of that booked in the final quarter, compared to a net profit of $2.4 billion for all of 2010.

The plunge came as the company was undergoing a major restructuring, phasing out its Symbian line of smartphones in favour of a partnership with Microsoft Corp. that has produced a first line of Lumia smartphones.

Nokia is depending heavily on the new phones to help maintain its ranking as the world's largest mobile phone maker as it operates in a rapidly changing landscape with RiM's Blackberry, Apple's iPhone and handsets running Google's Android platform take growing bites out of its market share.

S&P said on Friday it believed Nokia's partnership with Microsoft could help it improve its competitive position, but added: "we are uncertain about the extent to which revenue growth from higher-priced Lumia smartphones can offset a potentially rapid decline in revenues from smartphones based on the Symbian operating system."

"As a result, we believe Nokia's market share could further decline from 12.6 percent in the fourth quarter of 2011 following a decline from 28.1 percent in the fourth quarter of 2010," the ratings agency cautioned.

Nokia announced last month it would cut some 4,000 jobs at its smartphone manufacturing facilities in Finland, Hungary and Mexico by the end of this year, and that it would move part of its production to Asia.