Nokia's (NYS: NOK) comeback took another hit Wednesday after Moody's Investors Service downgraded its rating on Nokia's debt two steps above junk status, intensifying pressure on the handset maker as it continues its transition to using Microsoft's (NAS: MSFT) Windows Phone as its primary smartphone platform.
Moody's cut Nokia's senior debt rating by two steps to Baa2 -- the second-lowest among 10 investment-grade rankings and two notches above junk status -- with a negative outlook. The downgrade is the second by Moody's in four months. Fitch Ratings downgraded Nokia to BBB- in June, the final investment grade before junk, and in March Standard & Poor's downgraded Nokia to an upper medium grade at A-.
In a statement, Moody's analyst Wolfgang Draack said the latest downgrade reflected the reversal of fortune for Nokia, which has slipped from its leading perch in smartphones and had its weakened position crystallized in the second quarter when Apple (NAS: AAPL) passed it in smartphone sales for the first time.
"This deterioration has been caused by a loss of competitiveness of Nokia's Symbian-based smartphone portfolio and the transition of its operating systems to the Windows Phone platform, which we expect to take until the second half 2012 to fully complete," Draack said in a statement, adding that there is now "increasing price pressure and gaps in the company's mobile-phone portfolio that are now being filled." Draack also cited Nokia Siemens Networks as a drain on Nokia's finances.
Nokia reported dismal second-quarter results, showing declines in shipments, revenues and profits, but the company's outlook for the coming quarter was better than some analysts had forecast.
"The challenges we are facing during our strategic transformation manifested in a greater than expected way" in the second quarter, acknowledged Nokia CEO Stephen Elop last week. However, Elop pointed to a number of initiatives within Nokia to reverse its slide, including an acceleration of cost-cutting efforts he said will exceed operating expense reductions of $1.4 billion for the full year 2013. Nokia expects to ship its first Windows Phone device this year followed by a large increase in models and shipments next year.
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