Moody’s Corporation (MCO) downgraded Nokia Corporation’s (NYSE:NOK) debt rating today amid the company’s struggle to compete in a changing mobile device market. The company’s debt was downgraded to just one level above junk giving the company’s bonds a rating of Baa3.
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It’s not the first downgrade the telecommunications company has suffered in recent weeks. Societe General moved its advice on the company’s stock from Buy to Hold on its advice to investors last week while Barclays put the company’s stock on the same level a day later and set a price target for the company of $4.
After the news from Moody’s Corporation (MCO) today the company’s stock fell slightly below that level to $3.96 at time of writing, a fall of 1.49% on Friday’s close.
Nokia offered a defense to the move today pointing to the company’s large cash reserves which are gross 9.8 billion euros and 4.9 billion euros net cash position.
Those large balances give the company some security but not much as the firm downgraded its own outlook for the first quarter of this year amid an under performing feature phone market and a smart phone product that isn’t taking off as quickly as had been hoped.
Nokia Corporation’s (NYSE:NOK) signed a deal in 2011 to become the flagship provider of Microsoft Corporation (NASDAQ:MSFT)’s Windows phone software with its Lumia range of smart phones. The company had initially projected sales of 3.5 million Lumias in 2011 but revised that figure downward to just 2 million.
The greater price Moody’s Corporation (MCO)’s downgrade will put on Nokia’s borrowing will not help the company as it tries to carve out a position for itself in the mobile device market.
The company faces severe challenges in trying to resurrect its flailing business and the cost burden of the downgrade will be another adversary in its battle. The company’s statement about its cash reserves are not likely to sway attitudes of investors if the company does not improve its results quickly.
Nokia Corporation’s (NYSE:NOK) has faced trouble in defining itself in a changed mobile phone landscape. After the advent of the popular smartphone with Apple’s iPhone the company tried and failed to offer an alternative Symbian OS.
That project is now all but dead and the company’s deal with Microsoft Corporation (NASDAQ:MSFT) was supposed to open up a new direction in the smart phone market.
The launch of Windows 8 later this year will have a big impact on the success of that project though Nokia will need to prove itself able to survive before Microsoft Corporation (NASDAQ:MSFT) risks its new platform on the company.