Research firm Raymond James has maintained “Underperformrating on Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) following its second quarter 2013 results. In the second quarter, Nokia reported revenue of €5.7 billion; decline of 24.5 percent y/y. Revenue from the company were below the Raymond James estimate of €769 million. Non GAAP EPS came in at €0.04, better than expectations.

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Nokia’s 2Q performance

Nokia’s flagship Lumia phones garnered total sales of 7.4 million units, less than the estimates of 7.5 million. Total feature phones shipped came in at 53.7 million, a decline of 27.4 percent y/y and were below Raymond James‘s estimate of 60 million.

Nokia Siemens Network (NSN) posted revenues of €2.8 billion, a decline of 16.8 percent y/y and was below expectations of €395 million.

Nokia need profits from high end segment

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) posted respectable sales of Lumia phones, but average selling price was around $200, implying Lumia phones are popular in the low end segment. According to the research report, building a profitable Smartphone business at this average selling price is a challenge, and Nokia needs to garner profits in high end segment in order to make Smartphone business profitable.

However, Nokia stated that in the third quarter overall device revenue will rise but, it did not specifically state the rise in revenues of its smartphones, considering Nokia launched Lumia 928,925 and 1020 recently.

 Analysts at James Raymond are estimating operating loss of €700 million this year and sale of low priced Lumia’s at 20 percent gross margin, which in this case will not be enough to expand margin required to turn business to profitability.

Feature phones struggled

In the feature phone segment, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) faced decline possibly because of channel inventory movement, which made the revenue look worse than the reality. In the third quarter, experts are expecting the business to rise once the channel inventory becomes stable. EBIT is estimated to decline to €343 million this year compared to €533 million, in 2012. The researchers further noted that this segment will add nil to Nokia if the trend continues.

Here and NSN revenues expected to decline

Here, Mapping and location service from Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) performed well in the quarter. Revenue decline 18 percent, but sales other than Nokia surged 8 percent y/y and 19 percent sequentially. Business segment was more or less at break-even. Nokia users contribute 16 percent of sales to Here, and it is projected to decline in the future, which will put deeper pressure on revenues of the company.

 NSN revenues declined 17 percent y/y; however, 6 percent decline was due to recently exited business. Gross margin came in at 38 percent, and non-IFRS EBIT margin was 11.8 percent. There was no guidance for future quarters from management, but it is expected that revenues, in 2013, will be low, which will impact share value.