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Nokia rating cut by Moody’s over doubts about company’s ability to break even

Nokia has had its rating cut a further level by Moody’s Investors Service after it bought out its partner in the Nokia Siemens Network joint venture and demand for feature phones evaporated.

The Finnish phone manufacturer’s rating was downgraded by one notch to B1, leaving it four levels below investment level and reflecting Moody’s view that the company won’t break even on cash flow until well into 2014.

“We believe the company continues to face challenges returning to sustainable profitability in its core smartphone and mobile phone operations and because we believe that it is unlikely to break even on a cash flow basis before well into 2014, at the earliest," commented Moody’s analyst Roberto Pozzi.

The analyst’s main gripe is the weaker demand that exists for their devices, which marries up with the fact that the company reported a 27 per cent drop in the number of handsets sold in the second quarter. A revenue drop of 24 per cent was blamed on diminishing demand for the company’s usually reliable range of older, more basic handsets.

Weaker demand for Nokia devices in emerging markets continues to worry the ratings agency as the company will have to rely more on smartphone sales rather than its mainstay of feature phones.

Moody’s gained confidence from the company’s decision to acquire Siemens' 50 per cent of the Nokia Siemens joint venture for a “fairly low price” of $2.2 billion [£1.4 billion] and it has left the company looking forward with optimism.

"We are pleased that the strong cash position we have maintained throughout our transition has enabled us to take advantage of an opportunity to acquire full ownership of NSN, whose financial performance has strengthened markedly in recent quarters. In Devices & Services, we are pleased with the Lumia volume growth we delivered in the first half of this year and are looking forward to driving further share gains for the ecosystem. With these efforts our target is to return our Devices & Services business to sustainable cash generation as soon as possible," said Timo Ihamuotila, Nokia CFO.

Nokia plans to release a number of new devices in the coming months with a plethora of Lumia devices, including a possible phablet, being released in September in the hope they help build on Windows Phone’s four per cent market share.