Credit analysts are typically quicker to spot problems than equity analysts. That's why Nokia (NYSE: NOK) shareholders should note S&P's recent downgrade of Nokia's bonds, from "A" to "A-" with a stable outlook.

S&P's "A" rating is the third highest of 12 ratings. S&P says it represents "strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances." The minus sign shows the company's "relative standing within the major rating categories."

The explanation for the downgrade was where it got interesting. S&P's report said the downgrade was "primarily because we expect that Nokia's smartphone portfolio will make further significant market share losses during 2011 and 2012 until it has completed its adoption of Microsoft's (Nasdaq: MSFT) Windows Phone 7 software as its new primary software platform for smartphones."

Over the last year Nokia's market share in high-priced, high-margin smartphones dropped by almost one-fourth (see table). Its share of the global handset market fell more than 11%. S&P thinks the market share losses will continue.

Nokia global market share

4Q10

4Q09

Smartphones

31%

40%
All mobile phones

31%

35%

Source: Fierce Wireless.

There is some good news. IDC is forecasting smartphone growth of 49% this year. If IDC is correct and Nokia's smartphone share loss in 2011 matches its share loss in 2010, it would still see growth of 16%.

But Nokia is taking a "colossal gamble", according to The Motley Fool's own Eric Jhonsa. In February it announced plans to move from its Symbian operating system to Windows 7 and described 2011 and 2012 as "transition years". Nokia expects to ship Windows phones in large volumes sometime next year. Equity analysts are forecasting an EPS decline of around 15% in 2011.

Over the next four years IDC expects most Symbian users to move to Windows with Nokia. Over the same time frame, it also expects Apple's (Nasdaq: AAPL) iPhone and Research in Motion's (Nasdaq: RIMM) Blackberry market share to be little changed. According to IDC, Google's (Nasdaq: GOOG) Android operating system will be the big winner.

Foolish takeaway
As Yogi Berra said, it's tough to make predictions, especially about the future. That said, when storm clouds loom credit analysts have a better track record than equity analysts. Nokia shareholders should take S&P's credit downgrade as a warning that it may be time to fasten the storm shutters.

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