Can Nokia Capitalize on This New Phone?

Nokia (NYSE:NOK) needs a successful smartphone offering.

The Finnish smartphone manufacturer’s pre-fourth-quarter earnings announcement showed investors that its operating margin had surpassed the company’s guidance for the period; previously, Nokia had predicted a margin ranging from 4 percent to 12 percent, but results are now expected to fall between 13 percent and 15 percent.

However, while the margin improvement was good news for the company’s financials, critics were left unimpressed by its forecast for phone sales. Nokia said that it shipped 4.4 million devices in the fourth quarter, above the 3.8 million predicted by analysts at Baird, but below the 6.5 million Wells Fargo estimated. Analysts found the low sales concerning. Barclays analyst Jeff Kvaal wrote in a note seen by Barron’s that “neither Lumia nor Windows Phone has reached critical mass,” and downgraded the company’s shares last week to Underweight. He added, “CES checks showed few signs WP8’s promise is converting to sustained demand.”

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Despite the negative assessments, Nokia appears to be heading forward with Windows. The Verve reported Wednesday that Nokia has begun working on another phone, codenamed EOS, based on Microsoft’s (NASDAQ:MSFT) Windows 8. Sources told the publication that the new device will include a 41-megapixel camera similar to the one found in Nokia’s 808 PureView handset, making it a high-end offering. In addition, the device will be built from aluminum. The company’s current family of Lumia phones are constructed from polycarbonate.

As sales of Lumia phones have not been strong, Nokia needs to produce a new device to pick up the slack. Business Daily commented in a recent article that for the company to be truly viable, its market share must rise above 10 percent. And that will not be easy; devices from Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) are expected to make up the majority of the 875 million smartphones that Strategy Analytics said will be shipped this year. In December, Windows Phone’s market share in the United States dropped to 2.6 percent from 2.7 percent in the previous month, while Apple’s share came in at 51.2 percent and Google’s (NASDAQ:GOOG) Android had a 44.2 percent share.

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