This Underdog Smartphone Maker Still Showing It Can Compete

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Something remarkable happened on Thursday that gives further credence to the notion that the underdogs in the mobile phone business shouldn’t be counted out yet. Nokia (NYSE: NOK) reported fourth quarter earnings that beat analyst estimates.

While Nokia still has a ways to go to turn around its ailing company and stock, I disagree with those who don’t give the company credit for the strides it has made. Yes, Apple (NASDAQ: AAPL) and its iOS and devices powered by Android, the OS from Google (NASDAQ: GOOG), dominate the market. However, players like Nokia must be applauded for increasing their sales in an environment that is this competitive.

Nokia’s better than expected earnings news sent its stock higher by 16% during premarket trading on Thursday, as investors learned that Nokia’s flagship Lumia smartphone has been widely successful. That smartphones’ strong sales, as well as several steps the Finnish company has taken, have significantly impacted the company’s financial bottom line.

Pundits still pounced, however, with some saying the earnings increase was an anomaly, and that the company is all but finished. However, I take another view, and that stems from Nokia being able to make strides in an industry whose darlings were thought to be running away with the market.

For the fourth quarter, sales of Nokia’s flagship Lumia smartphone increased to 4.4 million from 2.9 million. Net sales from its devices and services segment totaled about $5.1 billion on the sale of a total of roughly 86 million devices.

The company’s operating profit for its handsets accounted for 2% of sales. This is far better than the operating loss of roughly 6% that the company said in October that it expected for the fourth quarter.

It seems Nokia’s decision to partner with Microsoft (NASDAQ: MSFT) to power its flagship Lumia 920 was not such a bad idea as that smartphone has grown to be one of the most popular Windows Phone 8 handsets. This puts Nokia in competition with Apple’s iPhones that run on its iOS, and the dozens of Samsung and HTC smartphones that run on Google’s Android operating system. And let’s not forget Research In Motion’s (NASDAQ: BBRY) upcoming release of its BlackBerry 10 at the end of the month.

Below is a chart of the most recent shipment data on smartphones. You’ll see how Nokia’s shipments were trumped by Samsung this year and last. Nokia once dominated the smartphone and cell phone markets globally, but it has found it difficult to maintain its market share by making smartphones that were more attractive than its competitors.

<img src="http://www.emarketer.com/images/chart_gifs/149001-150000/149176.gif" />

You can also see that Nokia has fallen behind in the OS arena, too, from the chart below.

<img src="http://www.emarketer.com/images/chart_gifs/145001-146000/145141.gif" />

The steps I mentioned that could help Nokia regain customers and attract new ones deal with it entering more markets. For example, it is launching various versions of the Lumia in India this month, and next. What could be very lucrative is Nokia’s unveiling of a version of the Lumia for China Mobile, which is that country’s largest wireless carrier. That’s a feat that even Apple has not been able to pull off – yet. Apple's CEO is in China now trying to strike an iPhone deal with the carrier.

Consider this about China. Some estimates show that almost 30% of global smartphone shipments went to that country last year, which is a roughly 14% increase from 2011 numbers. On that same note, the U.S. share of the market fell to about 15% from 23%.

So don't count Nokia out. I think even more light will be shed on how it is managing to hold its own over the next few quarters; I'm most curious about how well, or badly, it does against Apple's iPhone 5.

 


TwillyD has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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