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Recently, Moody’s Investor Service has slashed the long-term debt rating of Nokia Corp. (NOK - Analyst Report). The beleaguered mobile phone developer’s rating was a notch down from Ba1 to B1. The current rating of Nokia is four steps into Moody’s junk category. The outlook remains negative.

The rating agency stated that Nokia will continue to lose cash in the near term and a cash flow break-even will not occur before 2014. Ever since Apple Inc.’s (AAPL - Analyst Report) iPhone hit the market, Nokia has been facing distressing times. The situation further aggravated once Google Inc. launched its Android software and several handset manufacturers adopted the operating system. Nokia’s flagship Lumia series of smartphones, based on Microsoft Corp.’s (MSFT - Analyst Report) Windows Phone 8, lags iPhone or Android-based smartphones’ demand.

In the second quarter of 2013, Nokia’s total revenue was approximately $3,567 million, down 32.3% year over year. Within this segment, Smart Devices revenues were $1,524 million, down 24.5% year over year. Mobile Phones revenues were $1,840 million, down 38.7% year over year. Smartphone average selling price (ASP) was up 4% year over year but Mobile Phones ASP was down 16% year over year. Nokia shipped 7.4 million Lumia smartphones and 53.7 million Mobile Phones (including 4.3 million Asha full-touch phones), each down 27% year over year.

For the ensuing third quarter of 2013, Nokia expects its Devices & Services segment’s adjusted operating margin to be approximately negative 2%, plus or minus 4%. However, unit sales of the Lumia-series of smartphones will be sequentially higher. Nokia aims to reduce its Devices & Services adjusted operating expenses to around €3 billion by the end of 2013.  

Nokia has streamlined its cost structure to improve margins and cash position.The board of directors has decided to suspend annual dividend payment for the first time in over 20 years to ensure adequate liquidity. Nokia currently has a Zacks Rank #3 (Hold).

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