Nokia's credit rating was downgraded Wednesday as the world's largest producer of mobile phones sees its competitive position in the smart phone segment deteriorate.
Moody's Investors Service said it has downgraded the Finnish phonemaker's debt rating by two notches from A3 to Baa2 due to a "severe weakening" of Nokia's business position. A downgrade matters because companies raise money through the issuance of bonds as well as through shares and the lower rating implies potentially higher costs.
"This deterioration has been caused by a loss of competitiveness of Nokia's Symbian-based smartphone portfolio and the transition of its operating systems to the Windows Phone platform," Moody's Senior Vice President Wolfgang Draack said in a research note.
Moody's warned that it will take time for Nokia to make its operating systems Windows-compatible even after striking a partnership with Microsoft.
Draack said the benefits of the switchover to a Windows environment would likely not emerge until the second half of 2012, while increasing price pressure and gaps in the company's phone portfolio continue to weigh on competitiveness.
On a positive note, Moody's said the erosion of Nokia's sales volumes and profit margins "should be limited" thanks to new phone models such as the Dual-SIM card mobile phone and smartphones using the upgraded Symbian-Anna platform.
Moody's also stressed that Nokia has strong liquidity and capital structure, "which should support the transition process by covering possible cash burn."
Last week, Nokia posted a euro368 million ($533 million) loss in the second quarter on sales of euro9.3 billion ($13.5 billion) as Finland's largest corporation continues to lose ground to both top smartphone rivals and competitors in the low- and mid-tier handset market.
For the first time the once-dominant mobile phone giant slipped behind Apple Inc.'s iPhone in the second quarter in terms of quantity of smartphones shipped to vendors.
Nokia's shares are trading 0.8 percent lower at euro4.01 on the Helsinki exchange.