Moody's did downgrade Nokia and rightly so. They did it because of the huge negative free cash flow in quarter 2. Rating agency's generally look backwards, and investors look forwards. But from a credit rating perspective last quarter was a complete disaster and the rating downgrade completely justified. I thought they would get hit on release day. They went two quarters in a row with excellent free cash flow, then fell off the cliff again last quarter. That doesn't mean it matters though. The negative FCF number was so big Moody's doesn't believe Nokia can achieve positive free cash flow until next year.
I think otherwise, but that's why they downgraded Nokia. Free cash flow is a key metric to watch if you aren't already. Here's two years worth.
June 30, 2013 -625.81M
March 31, 2013 298.61M
Dec. 31, 2012 511.01M
Sept. 30, 2012 -676.50M
June 30, 2012 -1.382B
March 31, 2012 467.31M
Dec. 31, 2011 618.40M
Sept. 30, 2011 969.98M
June 30, 2011 -485.18M
Sentiment: Strong Buy
Moody's Investors Service cut its rating for Nokia Corp. (NOK1V.HE, NOK) by a notch, saying the struggling Finnish phone maker is likely to keep leaking cash.
Moody's cut Nokia's corporate family rating to B1, four steps into junk territory. The outlook is negative.
The downgrade reflects Moody's belief that "the company continues to face challenges returning to sustainable profitability in its core smartphone and mobile phone operations and because we believe that it is unlikely to break break even on a cash flow basis before well into 2014, at the earliest," said Moody's analyst Roberto Pozzi.
Moody's noted signs that Nokia and Windows Phone are gaining traction in establishing themselves as a third mobile operating system, after Apple Inc.'s (AAPL) iOS and Google Inc.'s (GOOG) Android. Still, the ratings firm noted that Nokia's current volume growth in smartphone sales is coming from a very low base, while operating margins and free cash flow were negative in the first half of the year.
The ratings company believes Nokia will only become more reliant on the success of its smartphone business as its stronghold in traditional mobile phones, particularly in emerging markets, continues to dissolve.
The new rating also incorporates Nokia's financing of its recently completed acquisition of Siemens AG's (SIE.XE, SI) stake in their Nokia Siemens Network for around $2.2 billion. Moody's said the restructuring of the business has largely been successful, and a turnaround could benefit Nokia's credit profile.
The outlook reflects Moody's belief that it could take Nokia longer than two years to return to profitability, amid stiff competition and volatility in the consumer mobile communications sector.
The rating could come under pressure if the company can't make its way out of the red or if its liquidity deteriorates. An upgrade is unlikely and would require Nokia to gain further traction in the smartphone market.
Nokia's American depositary shares were up 2.2% to
Nokia comments on Moody's credit rating announcement
Espoo, Finland - Timo Ihamuotila, Nokia's Executive Vice President and CFO, comments on today's rating decision from Moody's:
"We are pleased that the strong cash position we have maintained throughout our transition has enabled us to take advantage of an opportunity to acquire full ownership of NSN, whose financial performance has strengthened markedly in recent quarters. In Devices & Services, we are pleased with the Lumia volume growth we delivered in the first half of this year and are looking forward to driving further share gains for the ecosystem. With these efforts our target is to return our Devices & Services business to sustainable cash generation as soon as possible."
At the end of the second quarter 2013 and prior to the closing of the NSN transaction, Nokia Group had gross cash of EUR 9.5 billion and net cash of EUR 4.1 billion.
Nokia notes that it also has access to additional liquidity via a revolving credit facility of EUR 1.5 billion, which is entirely undrawn and available to the company through March 2016. Nokia Siemens Networks also has a EUR 750 million revolving credit facility that is entirely undrawn and available through June 2015.
Further information on Nokia's debt instruments can be found in the company's Q2 2013 Interim Report issued on July 18, 2013
nothing to worry about people jus walk on.......F.....G Moody's
So Nokia has over 10 billion dollars in cash of which around 5 billion net cash. On top of that it has got totally undrawn credit facilities amounting to almost 3 billion dollars. Nokia is turning around, watch cash flow and results from 3rd and 4th quarters.