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Analyst Blog

Nokia Corp. (NOK - Analyst Report) recently received a shot on its arm as Moody’s Investor Service upgraded the credit rating of the company. The rating agency upgraded Nokia’s corporate family rating to Ba2 from B1.

Moody’s also raised the rating of Nokia on a probability of default to Ba2-PD from B1-PD. The outlook on the rating is Stable. Currently, Nokia carries a Zacks Rank #3 (Hold).

The rating upgrade was based on three considerations. Firstly, the disinvestment of the loss making Devices and Services division is viewed as a positive. Secondly, anticipated stabilization of the core Network business within the next 12 -18 months despite stiff competition is another positive. Thirdly, the recently declared capital structure optimization program of the company has further encouraged the upgrade.

Last month, Nokia sold its handset business unit to Microsoft Corp. (MSFT - Analyst Report). Nokia failed to sustain its smartphone business due to cut-throat competition from Apple Inc.’s (AAPL - Analyst Report) iPhones and several innovative smartphones based on the Android software of Google Inc. . This division has been incurring losses for a long time period.

Despite facing intense competitive pressure, Nokia’s core network business is improving steadily. Last year, the Nokia Solutions and Networkssegment entered into a deal with content delivery network operator, CDNetworks, to accelerate the delivery of mobile content.

Liquid technology is a software solution for network infrastructure that drastically reduces the need for dedicated hardware. NSN stated that its new Liquid Applications will alter the competitive landscape of the telecom infrastructure gear market by revolutionizing base stations.

Recently, Nokia initiated a EUR5.0 billion (approximately $6.9 billion) capital restructuring program. The company also intends to start a EUR1.25 billion share buy-back program and will pay a special dividend of EUR0.26 per share totaling EUR1 billion. The remaining EUR2.75 billion will be utilized to reduce debts.