Standard and Poor's on Tuesday downgraded its credit rating on Finnish mobile phone company Nokia Corp., partly because of lower than expected device sales in the second quarter.
The financial ratings agency said it is lowering a long-term rating on Nokia to BBB from BBB+ "and affirming our A-2 short-term rating." It said the outlook for Nokia remains negative.
"Although we continue to believe that the strategic partnership between Nokia and Microsoft could help Nokia improve the currently weak competitive position of its smartphone portfolio, we expect low operating margins and further market share losses in the transition period," Standard & Poor's said.
Last month, Nokia reported a euro368 million ($523 million) loss in the second quarter as it continues to give up ground to top rivals. For the first time the once-dominant cellphone maker slipped behind Apple Inc.'s iPhone in the second quarter in terms of quantity of smartphones shipped to vendors.
In the first quarter, Apple was already making more money on iPhone sales than Nokia was on its N8 and other smartphones.
Standard and Poor's said its negative outlook "reflects the possibility of a further downgrade if we see no scope for the operating margins of Nokia's devices and services segment to recover over the next six to nine months."
The downgrade of a company's debt can make it more expensive for the company to tap capital markets to raise cash.
S&P said it forecasts low- to mid-single-digit operating margins for Nokia's devices and services sector in 2011 and 2012, "primarily due to lower revenues than previously anticipated for Nokia's Symbian-based smartphone portfolio and declining revenues from traditional mobile phones because of continually fierce competition."
Last week, Moody's downgraded Nokia by two notches from A3 to Baa2 due to a "severe weakening" of Nokia's business position.
Standard & Poor's said it expects revenues of Nokia's devices and services segment to decline by about 20 percent in 2011, but to recover by 2013 to the level reported in 2010.
Nokia Corp. shares were down 1 percent at euro3.84 ($5.51) in late afternoon trading on the Helsinki Stock Exchange.