Nokia's Credit Rating at Risk as Handset Margins Decline

Nokia Oyj, the world's biggest maker of mobile phones, faces a potential credit rating cut by Standard & Poor's as its handset margins deteriorate amid intense competition from Apple Inc.'s iPhone. The company has struggled to deliver a touchscreen device that meets user expectations, with its main handset operations facing a possible decline in margins. Nokia has announced only one new high-end phone, the N8, while competitors like Apple and other vendors are releasing models with Google Inc.'s Android software.

Key Takeaways:

• Nokia's credit rating outlook was lowered to "negative" from "stable" by Standard & Poor's due to its weak competitive position in smartphones.
• The company's long-term rating of "A" remains unchanged, but may be cut if margins don't improve from the fourth quarter.
• Nokia's Devices & Services segment has seen a material deterioration of its historically industry-leading margins, which began at the end of 2008.
• The company's margins in its main handset operations could fall below its forecast of 11 to 13 per cent.
• Nokia has struggled to deliver a touchscreen device that meets user expectations raised by the iPhone.
• The company has announced just one new high-end phone, the N8, while competitors are releasing models with Google Inc.'s Android software.
• Nokia's N8 is expected to be shipped in the third quarter.
• Apple's iPhone 4 has been highly successful, with 600,000 pre-orders.

Statistics:

• Nokia's Devices & Services segment margins have declined from 18.2 per cent in 2008 to 12.5 per cent in the previous year.
• The company's forecasted full-year margins in its main handset operations are 11 to 13 per cent.
• The iPhone 4 has generated 600,000 pre-orders.

Sources:

Bloomberg News

Nokia Oyj

Standard & Poor's

The Toronto Star