S&P just downgraded Nokia‘s rating to A-, saying its marketshare and operating margins are going down, Bloomberg reports. Nokia had held an A rating since 1998, so this is a pretty big deal.The market has reacted pretty negatively so far to Nokia’s move to Windows Phone 7, with the stock tanking and CDS spreads rising. Another less reported story is the fact that Nokia, usually dominant in the dumbphone/featurephone category, is being eaten alive by Chinese upstarts making cheaper handsets, which is putting huge pressure on margins.
While the question of whether Nokia can build a strong smartphone platform with Windows is crucial for Nokia’s long term success, what’s crushing their P&L now and short term is this undercutting. Nokia’s key competitive advantage, most often touted, is its huge global marketshare and distribution network. The idea is that thanks to this, it can come from behind once it has smartphones that can rival the iPhone and Android. But if that gets squeezed by Chinese upstarts, then Nokia is really doomed.