Moody's Investors Service has downgraded the long-term senior unsecured ratings, the corporate family rating and the probability of default rating of Nokia to Ba3 from Ba1. The outlook on all ratings remains negative. Nokia reported a 9.1 percent negative non-IFRS operating margin for the Devices & Services segment in Q2, which was far worse than the negative 5.0 percent with an improving trend in H2 that Moody's had factored into the Ba1 rating. The negative outlook on Nokia's ratings reflect the low visibility with regard to the trend for Nokia's market share in smartphones and whether its Windows devices can attain a solid market share with positive income contribution to Nokia; demand and margin potential for the group's feature phones in emerging markets; and Nokia's future net cash flows. Moody's estimates that funds from operations in the core business have not materially improved in Q2 and will deteriorate further due to aggressive pricing, cash cost of restructuring and launch cost for new devices. Moody's now expects a return to profitability at Nokia only in the second half 2013. Nokia issued a statement in response to the downgrade, saying that while it's disappointed with the decision, its impact on the company is limited, and management is working quickly to turn around the group's results.
