What’s Next for Nokia?

Nokia (NYSE:NOK) published fourth-quarter 2012 and first-quarter 2013 outlooks on Thursday that, by the middle of the afternoon, caused nearly 250 million shares to trade hands, about five times its three-month average volume.

Trading was heaviest in the morning when the report hit the wires, but volume remains high in the afternoon. The analyses have shot back and forth across the media-scape all day, and a 17 percent jump in the stock price is telling one story: the bulls win this one. As for anyone with a short position — 280 million shares as of December 14 — you’re out of luck.

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The highlights of the report are better-than-expected sales and lower operating expenses, resulting in break-even or positive margins. This is a welcome development for a company that has been operating in the red recently, with margins as low as -11.50 percent.

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 12,420 12,950 9,629 9,227 9,486
Diluted EPS ($) -0.03 -0.37 -0.33 -0.47 -0.34

Nobody likes to see that much red on an earnings statement, but optimistic observers and long-term bulls have built a strong argument for the company’s position heading through 2013 and beyond…

 Margins make or break the competition

It’s been pointed out that Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) claim a combined 87.9 percent of the smartphone market, and 106 percent of the profits. Yes, 106 percent, because every one else is losing money. It’s wonky math, but it’s meant to illustrate a point.

The point is, there’s no point in growing share if your margins aren’t positive. Nokia had, and still has, some fundamental problems to sort out before it’s ready to stand up straight and start fighting vigorously for market share. Apple has a death grip on the high end of the market, Google has infiltrated the middle- and low-end markets, and picking a fight with just a few Windows phones for consumers to choose from doesn’t make a whole lot of sense.

As reported by comScore for October 2012:

Share (as a percent) of smartphone subscribers
Company July 12 October 12 Difference
Google 52.2 53.6 1.4
Apple 33.4 34.3 0.9
RIM 9.5 7.8 -1.7
Microsoft 3.6 3.2 -0.4

Now that the ball is rolling, though, can investors expect the stock price to climb back to historic levels?

In 2009, Nokia had close to a 40 percent share of the smartphone market. In just a few years it has crashed to a single-digit slice, largely at the expense of Samsung (SSNLF.PK). Nokia’s stock price reflects this decline, falling from highs near $40 per share in 2007 to their current price level, just above $4…

nokia lumia

But just as Samsung capitalized and grew fat on its relationship with Google’s Android OS, Nokia can capitalize and grow fat on its relationship with Microsoft (NASDAQ:MSFT). Windows 8 may have had a soft launch, and Big Softy may getting mauled by the bears, but there’s no hiding that a significant market still exists for Windows-powered Lumia phones.

No one is expecting Nokia to rocket into first place over night, but the smartphone market is so massive — 1.4 billion shipments expected in 2016, double the level in 2012 — that if Nokia can take just 10 percent of that, it will be selling more phones than Samsung did in 2011.

In its report Thursday, Nokia revealed that it sold 4.4 million Lumia smartphones and 9.3 million Asha full-touch smartphones.

Nokia Corporation Sponsored Ame Stock Chart - NOK Interactive Chart - Yahoo! Finance

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