CREDIT investors are betting that Nokia is poised to lose its investment-grade rating as Apple's iPhone and Google's Android eat into the market-leading position held by the world's biggest seller of handsets.
The extra yield investors demand to hold the company's 6.75pc bonds due 2019 rather than government debt has more than doubled from 307 basis points since May 30, the day before it dumped its 2011 targets and unveiled second-quarter results below analyst forecasts.
The cost of insuring Nokia debt soared to 246 basis points from 120 in the period, according to CMA prices for credit-default swaps.
Standard & Poor's yesterday cut the Espoo, Finland-based company's ranking one level to BBB+, two days after Fitch Ratings downgraded it to BBB-, a step above speculative grade.
Consumers are deserting Nokia's handsets, powered by its Symbian operating system, as the company works to start shipping its first phone based on Microsoft's Windows Phone 7 in the fourth quarter.
"Nokia has totally lost its way at the high end of the market, where it's just not up to the standards of its competitors," said Madeleine King, a credit analyst at Credit Suisse Group in London, who said she "doesn't rule out" Nokia being cut to junk if the Windows phone flops.
S&P said it may cut the rating again and Fitch left the outlook negative. Both cited sliding margins and sales, and likely cash burn.
"S&P also noted the group's exceptional liquidity profile and Nokia's history of maintaining a conservative financial policy, which targets a strong balance sheet," James Etheridge, a spokesman for the phone company, said in an email.
Nokia, whose 2010 sales of $61bn (€42bn) are equivalent to about a quarter of Finland's annual economic output, has seen its value plunge by more than 77pc since Apple introduced the iPhone in June 2007.
The company is racing to come up with products to meet consumer demand for smartphones, particularly in Europe and China, where competition from Google's free Android software is "intense", according to CreditSights analysts Ping Zhao and Jordan Chalfin.
Moody's Investors Service rates Nokia A3, three levels higher than Fitch, and is reviewing the company for a possible downgrade. The ratings firm said it would focus the review on how Nokia plans to stem the erosion in market share and on its ability to cut costs and limit spending. (Bloomberg)