Standard & Poor's cited the impact on Nokia's (NYSE: NOK ) cash position from the pending $2.23 billion purchase of the remaining 50% ownership stake in Nokia Siemens Networks (NSN) from Siemens as one reason for lowering Nokia's long-term credit rating from BB- to B+, S&P announced today. Nokia's short-term corporate credit rating remained unchanged at B.
According to S&P, Nokia's negative free operating cash flow (FOCF), coupled with the approximately $2.23 billion purchase of NSN, raises concerns about "Nokia's ability to sustainably generate positive FOCF -- especially in its Devices & Services (D&S) division, given the low visibility on revenues and margins and its small market share in smartphones."
S&P revised its estimates for Nokia's 2013 year-end net cash position to $1.66 billion or above, down from earlier estimates of $3.84 billion. The ratings agency also expects Nokia's "cash burn" in its second quarter to range from $384 million to approximately $1 billion, adding to S&P's concerns surrounding Nokia's long-term FOCF and net cash position.
"The ratings reflect our revised assessment of Nokia's financial risk profile assessment to 'aggressive' from 'significant,' " the agency said. "We continue to assess its business risk profile as 'weak.' "
Nokia FO Timo Ihamuotila said, "With a strong positive gross and net cash position, Nokia was able to take advantage of an opportunity to fully own Nokia Siemens Networks and, we believe, create meaningful value for Nokia shareholders. We will continue to prudently manage our cash resources post-transaction."
-- Material from The Associated Press was used in this report.