Nokia on the ropes after credit rating downgraded to 'junk'

Nokia has been given a stark warning over its future financial position after it received a severe kicking from credit ratings firm Fitch.

Fitch has downgraded the Finnish phone maker’s rating to ‘junk’, dropping BBB- to BB+, as the company becomes less viable for investment than your average Eurozone nation.

In order to avoid further negative action, Nokia needs to start performing quickly.  Following some concern from other credit ratings agencies such as Moody’s last week, this is not something Fitch is particularly hopeful of.

The mobile firm needs to “stabilise revenues” and start generating cash if it is to be considered for an upgrade any time soon, a statement read.

However, the ratings agency said that “given the potential headwinds facing the company” it is not convinced that this will happen in the next 18 months.

Indeed the firm is being buffeted from various angles as its business receives stiff competition from both its high end Lumia smartphone range, and its lower end models.

CEO Stephen Elop had hoped that the Lumia would be able to turn around the fortunes of the ailing company, aided by a marriage of convenience with Microsoft.   

Of course, as Nokia’s recent results show, this has not exactly gone to plan.   In fact Stephen Elop’s “burning platform” is turning into a sinking ship as it struggles to flog its smartphones in a highly competitive market.

Despite some initial optimism for the link up with Windows, it appears the decision may have fallen flat as mobile operators claimed Android might have been a better fit.

Even in emerging markets such as India, a stronghold for Nokia in the past, the phone maker is seeing its profits eroded as vendors producing cheap Android handsets make life difficult at the lower end too.

Such is the dire picture for Nokia that Fitch paints, even a partial success with its Lumia range is not likely to be enough to make up for losses throughout the rest of its business.

Nokia has a built up a sizeable pile of cash over the years, from sales of rubber boots right through to the flagship 3210.  Its results showed it had around €4.9 billion in the bank. 

But unless the firm returns to its winning ways soon, then that fortune will quickly dwindle.