Bond market discounting Nokia's credit rating

The world’s largest mobile-phone maker’s bonds are trading as if Nokia’s rating has been cut, with spreads over government debt widening as the company strives to develop devices with the same mass appeal as the iPhone, Research In Motion Ltd.’s BlackBerry and devices based on Google Inc.’s Android software.

There’s a “significant amount of risk overall with Nokia’s business model,” said Scott Shiffman, who directs bond research at Chapdelaine Credit Partners in New York. “Credit spreads should move wider over time and ratings will continue to move lower. We think the ratings agencies will play catch-up to the business deterioration.”

via Nokia’s Credit Rating in Jeopardy on Falling Profit, Bonds Show – Bloomberg.

Management response continues to be that Nokia is “by a very wide margin the largest supplier of smartphones and small computers in the world.”

  • FalKirk

    Nokia: The poster child for market share over profit share.

    • Tom

      Android phone makers and windows phone 7 makers will follow suit. Lotsa phones and itty bitty profit.

      • FalKirk

        Microsoft cannot afford to follow that model. They take a small licensing fee from every sale. Small market share will be the death of their phone.

        People think Androd is competing with the iPhone. But android's business model is identical to Windows Phone 7 EXCEPT that Android is free to manufacturers. With Android's huge head start in sales, their established App Store and their free licensing model, how can the Windows phone7 hope to compete?

        Windows phone 7 will steal market share from Android, Android will steal profit from Windows phone 7, eventually Windows phone 7 will collapse because it's low sales will not attract enough developers to sustain a viable app store, and when the dust settles, everyone will be the worse for wear – except Apple who will be sitting pretty.

  • Rob Scott

    Something that most people do not know is that it is not only Nokia that lose money in their push for market share but also the telcos that stock and distribute their phones. But for some stupid reason (the reason is that people need phones to use the network, so no cheap phones no money) both the OEMs that push for unit market share over profit share and the telcos that supports them continue with this money losing dumb strategy.

    Android is going the same direction. There are tons of Android devices coming through in the first half on next year most sub $100.00. Each and every one of the Android suppliers will be making less money on a phone than a year before. For telcos – ARPU will take a nose dive so will be AMPU.
    I also wonder how free Android is for the OEMs. HTC is paying Microsoft to licence some of their patents. They are also being sued by Apple. Oracle is also suing Google over Android use of Java. If HTC and Google loses what would happen to Android?

    No doubt though, Android has great momentum right now. Windows Phone 7 will probably succeed (gain a respectable share) but Microsoft will not make anything close to what they make in PCs in revenue and profits, with their $15 -$25 per device fee.

    Revenue and Profit wise, I see Apple winning for a very long time. They have a far superior strategy to all of them.

  • alex

    Do you believe that Nokia will ever recover?

    • asymco

      Recovery needs to be defined. The disruption of mobile broadband is affecting the entire industry. It's unlikely that Nokia will enjoy the position of share leadership in data-oriented devices as it did in voice-oriented devices. Mobile computing is a completely different business to be in from mobile telephony. Nokia's failure was to consider mobile computing as a sustaining improvement to mobile telephony. The problem is that the new industry has completely different value chains and cost structures so it's not possible for the current organization to adapt.

      Something called Nokia can still emerge from this disruption. It just won't be the same as the old Nokia. But Nokia was reborn once before…