Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s latest quarterly earnings report has caused so many concerns for analysts at BMO Capital Markets that they’ve downgraded the stock. They now rate Nokia shares as Underperform, although they have left their $3 per share target price on the stock.


Nokia’s Average Selling Price Is Down

One of the key areas of concern analysts Tim Long and Ari Klein have regarding Nokia is average selling price. They note that the company’s Lumia 520 handset is doing well, which means that the company has successfully moved into the low or mid-tier of the smartphone market. However, they don’t believe that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s higher end handsets will be able to grab a significant enough market share. In their view, Nokia Smart Devices may not be profitable until at least late next year.

They also said that Nokia is still an important force in the feature phone market and believe that the major Asha line refresh could help the company’s third quarter sales. However, they see a 15 to 20 percent decline in the market by next year, paired with falling average selling prices, which they see as a problem for Nokia.

Other Potential Problems In Sight For Nokia

The analysts are also concerned about operating margins at Nokia Siemens Networks. They think the margins have peaked and said that there is more top-line pressure.

In addition, they note that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s cash position has been dwindling over the last few years. The company used €1.7 billion in cash to buy Siemens’ stake in the Nokia Siemens Networks, and as a result, they predict that cash problems will begin this year or early next year.

What BMO Doesn’t Mention

There are a couple areas of interest that aren’t mentioned by the analysts. They remain concerned by Nokia’s successful move into the low-end smartphone market, but numbers elsewhere indicate that high-end smartphones from all companies are not selling as well as low-end handsets. High end smartphone customers are taking longer to upgrade their phones because there haven’t been many features setting new models apart from previous ones. As a result, companies like Apple Inc. (NASDAQ:AAPL) are trying to move into the low-end market because that’s where the growth is.

In addition, the Lumia 1020 has a 41-megapixel camera and a professional-grade photography app which sets it apart from other high-end models. The key here is going to be whether future high end devices from Apple Inc. (NASDAQ:AAPL) and  Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) will be differentiated enough from prior models to still garner upgrades. BMO analysts aren’t impressed by the high-end Lumias and don’t think they will penetrate the market.