Nokia announced a critical decline in sales in the first quarter (Q1) 2012, 11 April. Phone sales dropped 16 percent over Q1 2011. Phone revenues fell by 35 percent over last year.
This development is unusual. Giver of world-class ranking, Moody's Investor Services cut the ratings of Baa2 to Baa3 Nokia. The Finnish company's performance is noted to be the worst in 15 years.
Moody's believes the structural challenges faced by Nokia mobile segments are not easy. Even the stock market gains recorded by mobile phone makers are very low-end or the promotion of a new mobile phone operator China.
This sharp decline is of particular concern given the mobile phone Nokia is still the core revenue for the Nokia group in 2011. Phone segment contributed EUR1, 5 billion in profit EUR1, 8 billion.
Transition from the Nokia Symbian-based smartphones to Windows Phone-based Lumia provide more challenges more. Symbian smartphone sales dropped rapidly, while sales climbed slowly Lumia.
Baa3 rating for Nokia showed lower Moody's expectations for sales Lumia. The placement price and marketing support make Lumia acceptable to the market in the third position of the system after Google's Android smartphone and the IOS from Apple.
Moody's expect profits could push Nokia mobile phone segment and suppress the migration of low-end smartphone to feature phone category that will continue. Nokia is more dependent on the smartphone segment of the series Lumia to reduce the company's diversified group of income.
In Moody's notes, Nokia has maintained its liquidity position and strong capital structure. Demonstrate the company's management of cash and marketable securities amounted to EUR 9.8 billion, about twice the debt at the end of March 2012.
Nokia closed the first quarter of 2012 with a EUR4, 9 billion of net cash was reported. After producing more than EUR500 million in the fourth quarter of 2011, Nokia consumes nearly EUR700 million in the first quarter of 2012, related to working capital, but this depends on the stabilization of revenue in China. For liquidity needs, Nokia also has a EUR1.5 billion credit facility which matures in 2016 without financial restrictions.
Causes of falls rating
Baa3 rating Nokia brings a negative view on the performance of low visibility that comes from market pressures and product transitions. Moody's considering downgrade below investment grade if there is evidence of its product portfolio Lumia failed to gain momentum, for example, by the slow accretion of consumers.
Other reasons for non-IFRS operating margin (International Financial Reporting Standards) for the device and service decreased to below -3 percent and failed to recover in the second half of 2012. Fund consumption continues at a high level without a reduction of material beyond the next quarter.
Judging from the ratings is negative, the potential for Nokia to rise still limited. Improved ratings can occur when Windows became a major competitor Android-based devices. Group revenues began to grow and show the advantages of high achieving single digit percent can also be helpful. Moody's requires at least 1 percent of adjusted on the end of 2011.
To achieve stability, Lumia series should prove to the acquisition of a large market share and return focus to the smartphone segment for non-IFRS operating profit. Phone segment should be stable in volume sales and profits while contributing double-digit return. Cash consumption needs to be reduced to a marginal level.
Nokia as a mobile phone manufacturers have mastered the boom about a third of global market. Nokia should see Lumia faster.
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