Nokia Debt Rating Cut to Junk Status by Fitch

Apparently unimpressed with Nokia’s turnaround progress, which relies heavily on the success of Microsoft’s Windows Phone 8 mobile operating system, Fitch Ratings Service announced Tuesday it has cut the Finnish company’s debt rating to junk status, citing weak first quarter performance that resulted from the growing level of competition in the global smartphone market.

Fitch cut Nokia’s rating from the lowest investment grade of BBB- to BB+, considered the highest of the ratings associated with junk bonds. The agency also assigned a long-term outlook of “negative” to Nokia, meaning it will revisit the rating again in the coming months and may issue another downgrade. Sparking the downgrade, Fitch noted, was the company’s weak first-quarter performance as well as its forecast for continued losses through the rest of the year.

Nokia CEO Stephen Elop has maintained for the last several years that Nokia is in transition, and will take some time to turnaround its fortunes given the stout competition in the smartphone space from rivals like Apple and Google, whose Android OS powers more smartphones than any other platform. As part of Nokia’s turnaround plans, the company discontinued its struggling Symbian OS last year in favor of Microsoft’s Windows Phone. The first Nokia device powered by Windows Phone was the recently launched Lumia, which the company moved 2 million of in the first quarter.

Fitch noted in its announcement that Nokia would have to show substantial improvement in results in the second half of this year and the first half of 2013 in order to avoid another downgrade. Unfortunately, the recent dialogue from the Finland-based handset manufacturer has not created a very enthusiastic environment, as the company has said it expects competition and the weak global economy to continue to weigh on results for at least the next few quarters.