Fitch downgrades Nokia to BB+, outlook negative

Telecom Lead Europe: Fitch Ratings has
downgraded Nokia’s long-term issuer default rating (IDR) and senior unsecured
rating to BB+ from BBB-. The outlook on the long-term IDR is negative.


“We are quickly taking action to position Nokia for
future growth and success. Nokia will continue to increase its focus
on lowering the company’s cost structure, improving cash flow and maintaining a
strong financial position,” said Nokia’s Executive Vice President and CFO.

According to Nokia, its financial position remains
strong. As of March 31 2012, Nokia had gross cash balances of EUR 9.8
billion, and a net cash position of EUR 4.9 billion. Nokia reported
its first quarter 2012 results on April 19, 2012.

Fitch said the downgrade reflects Fitch’s view that
the deterioration in the company’s core devices and services division in Q1,
together with the company guidance of -3 percent non-IFRS operating margins or
below for the division for Q2 and the general lack of visibility beyond this
point, means Nokia’s profile is no longer commensurate with an investment grade

To avoid further negative rating action, Nokia needs to
demonstrate substantial improvements over Q3 2012, Q4 2012 and 2013.

Fitch believes that Nokia needs to stabilize
revenues and be capable of generating low-single digit non-IFRS operating
profit margins and positive pre-dividend free cash flow, if Fitch is
to affirm the rating at the ‘BB+’ rating level. Given the potential headwinds
facing the company, Fitch is currently not convinced that Nokia can
attain this over the course of 18 months.

The launch of the new Lumia phone with AT&T, and the
potential launch of new Nokia products later in the year, could be positive for
Nokia’s credit profile. However, there are also numerous negative potential
factors which could delay or fully impede a recovery. These could come from
further dramatic declines in Nokia’s low-end smartphone and feature phone
business, further losses at NSN, or only partial success of the Lumia product
range that does not compensate fully for the declines in the rest of the

Nokia currently has gross cash of EUR 9.8 billion and a
net cash position of EUR 4.9 billion as at Q1 2012. Though this net cash
position is currently strong, this could be depleted over the next 18 months by
substantial restructuring charges and the potentially negative operating cash
flow that could persist unless the company’s operating performance improves.

The agency will monitor the company’s Q3 2012 and Q4 2012
results for evidence of a stabilization of operating trends.
If Fitch believes that Nokia is not capable of stabilizing revenues
and generating positive operating margins, further negative rating actions will
be taken.

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