Moody8217;s downgrades Nokia to junk status

Moody8217;s said Nokia Corp.8217;s plans to focus 8220;its direct marketing on fewer markets,streamlining support functions and reducing investments in certain Ramp;D projects 8230; delineates a scale of earnings pressure and cash consumption that is larger than we had previously assumed.8221;

The agency8217;s downgrade _ the second in two months _ came after Nokia stock plunged 18 percent on Thursday following its announcement to close production and research plants,with 10,000 job cuts by the end of 2013. Nokia also sounded pessimistic about its outlook,saying that heavy competition would continue to hit its smartphone sector in the second and third quarters more than previously expected.

The measures were aimed at additional cost savings of euro 1.6 billion 2 billion by the end of next year,in addition to last year8217;s announced plans to cut 10,000 jobs to save euro 1 billion by 2013.

Despite the latest downgrade,Nokia shares were up 4 percent at euro 1.91 2.41 in afternoon trading after falling to their lowest level ever in Helsinki on Thursday.

Moody8217;s,which previously lowered the cellphone maker8217;s debt rate on April 16,said that despite its decision on Friday,it considers 8221; Nokia8217;s commitment to decisive restructuring as positive and necessary to return the group to profitability.8221;

8220;A return to profitability also depends on Nokia successfully transitioning its range of smartphones to the new Windows operating system and stabilizing its feature phone business,8221; Moody8217;s said.

Nokia has been fighting fierce competition from Apple Inc.8217;s iPhone and other makers using Google Inc.8217;s popular Android software,including Samsung Electronics Co. and HTC of Taiwan,and is also being squeezed in the low-end by Asian manufacturers making cheaper phones,such as China8217;s ZTE.

The former bellwether of the mobile industry had one of its worst results in the first quarter with a euro 929 million net loss as sales plunged,especially in the smartphone market. In 2011,it was still the world8217;s top cellphone maker with annual unit sales of some 419 million devices,but in the last quarter of the year posted a net loss of euro 1.07 billion,a marked reverse from the 745 million profit a year earlier.

Having held the top spot for 14 years,with a 40 percent market share in 2008,Nokia seemed to have run out of steam.

It had hoped to remedy the situation with the new Windows Phone 7,launched in October,eight months after CEO Stephen Elop announced a partnership with Microsoft Corp. and has launched several versions of the Windows-based Lumia phones,including cheaper models for Asian markets.

8220;For Nokia to return to growth in this segment,it will primarily require the Lumia smartphones,which are selling in several versions and many markets,to gain traction in the smartphone market,8221; Moody8217;s said. 8220;Indeed,in Moody8217;s view,the attractiveness of the Lumia range should be boosted by the introduction of the Windows 8 operating system for mobile devices,to be launched in the second half of 2012.8221;

Bucking the trend,two Wall Street analysts on Friday upgraded Nokia.

Oppenheimer analyst Ittai Kidron upgraded the company to 8220;Perform8221; from 8220;Underperform,8221; saying that the cuts will buy Nokia some time,but its long-term success will depend on new products like the Windows 8 phones _ and he can8217;t predict how that phone will fare. He said 2012 will be tough,but 2013 is an 8220;unknown path.8221;

Citi analyst Zahid Hussein also upgraded the company to 8220;Neutral8221; from 8220;Sell,8221; calling the company8217;s moves 8220;painful but necessary.8221; He said that if Nokia can successfully cut costs,it could return to break-even as early as the third quarter of 2012,quicker than expected.