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Moody's Cuts Nokia to Junk As Woes Continue

Ailing handset maker Nokia Corp. (NOK) Friday saw its credit downgraded to junk by Moody's Investors Service, which said Nokia is facing more pressure on its earnings and higher cash burn than it had previously thought. The downgrade of Nokia's credit to Ba1 from Baa3 -- Moody's second downgrade of the company within three months -- means Nokia's credit now carries junk status by all the three major credit rating agencies. Nokia's credit was downgraded to junk by Fitch Ratings and Standard & Poor's in April. All the rating agencies have a negative outlook for Nokia's credit. Although Moody's said the massive restructuring effort that Nokia announced on Thursday is both positive and necessary for the struggling company's ambition to return to profitability, it cautioned that if Nokia's revenue doesn't stabilize soon it may need to carry out additional restructuring. Nokia Thursday announced sweeping plans to reshape its handset business, cutting 10,000 jobs, shuttering factories and research facilities as well as replacing several high-ranking executives. The company also warned its loss in the second quarter would be higher than it previously forecast -- its third cut in earnings outlook in a little over a year. The shares plunged 18% as a result. Moody's added that Nokia may have to contribute more funding to its network equipment joint venture with Siemens AG (SI), Nokia Siemens Networks, if NSN's restructuring costs start to exceed its cash flow. In a separate statement on Friday, Fitch Ratings said Nokia's profit warning suggests that the company over the last two months has moved further away from being able to deliver stable revenues and positive operating margins. The ratings agency added that Nokia now is facing a "precarious combination of a depleted cash balance, without an end in sight to the declining cash flows." "If we are not convinced that the company can succeed in delivering [positive operational cash flow], we will take a negative rating action," Fitch said. On a more positive note, Moody's said Nokia's new range of smartphones, running Microsoft Corp.'s (MSFT) Windows operating system, should get a boost by the launch of the next Windows 8 operating system, which is expected this fall. Additionally, Nokia's new line of basic mass market feature phones with full touch-screen functionality should support demand in emerging markets and raise average selling prices for Nokia's phones, Moody's said. At 1226 GMT, shares in Nokia traded 3.5% higher at EUR1.892. Write to Sven Grundberg at

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