Beleaguered handset manufacturer Nokia Corporation (NOK - Analyst Report) has agreed to sell more than 500 wireless patents to New York-based Vringo Inc. for a cash consideration of $22 million. We believe this is a strategic move by the company to offload some of its non-core assets to support the corporate restructuring it had announced in June.

As part of the deal, Nokia is selling 31 of its standard range of cellular infrastructure technology and will end up earning royalty revenue, if Vringo manages to generate more than $22 million from the patents. On the part of Vringo, it will issue 9.6 million shares to raise the money for the patent acquisitions.

In another move, the Finnish company is also selling its remaining Qt software business to Digia, which acquired a portion of its business about a year ago. Nokia is moving away from this open source application developer as it was largely used in the Symbian operating system, which it has already ditched for Windows-based smartphones.

Despite teaming up with Microsoft Corporation (MSFT - Analyst Report) to develop Windows-based smartphones, Nokia is still lagging far behind rival Apple Inc’s. (AAPL - Analyst Report) iPhone, and an array of other smartphone manufacturers using Google Inc’s. (GOOG - Analyst Report) Android platform.

In an effort to overcome this difficult situation, the company is trimming its work force by 10,000, downsizing its research and development units and selling its luxury phone unit Vertu that would thereby help it to reduce $2 billon in cost by the end of 2013.

We believe selling patents is the right strategy for Nokia, as it will help the company to monetize its huge portfolio of patents coupled with minimizing its legal risks. Nokia will focus on many such deals until the company’s newly launched Lumia series of smartphones is able to generate significant sales and establish a significant share in the smartphone market.

The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 11 cents for the third quarter with a growth rate estimate of (382.35%). For 2012, the Zacks Consensus Estimates stands at a loss of 37 cents with a growth rate of (197.97%) but for 2013 the Zacks Consensus Estimates stands at breakeven with a growth rate of 100.00%.

Recommendation:

We retain our long-term Neutral recommendation on Nokia. Currently, Nokia has a Zacks #3 Rank, implying a short-term Hold rating.