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Nokia Siemens network a 50-50 joint venture between Nokia Corporation (NOK - Analyst Report) and Siemens AG has tied up with Singapore-based original equipment manufacturer Flextronics International Ltd. (FLEX - Snapshot Report) to open a plant that will build next generation mobile phone network for the Latin American market.

Brazil issued 4G broadcast licenses in June, 2012, along with the clause that 60% of the hardware has to be procured from Brazil alone. The upcoming plant, which is expected to start selling wireless equipment from October this year will cater to the 4G wireless equipment demand from the Brazilian operators and will considerably reduce the company’s transport costs.       

Recently, Nokia declared its second-quarter 2012 financial results. The company’s net revenue of $9,689 million exceeded the Zacks Consensus Estimate of $9,333 million and adjusted EPS of a loss of 10 cents bettered the Zacks Consensus Estimate of a loss of 11 cents. However, based on stiff pricing competition from Sweden’s Ericsson (ERIC - Analyst Report) the network arm of the company posted revenue of $4,925 million, down 8% year over year.

Notably, Brazil is hosting the Confederations Cup in 2013 and the FIFA World Cup in 2014. It is expected that there will be an additional surge in voice and data demand from football fans all around the world. In an effort to support this huge demand, operators have already committed $1.5 billion in capital expenditure for the next year with 30% of it committed toward 4G technology.      

We believe this strategic move will boost the company’s small cell business, which is an upcoming technology to support wireless data transmission and also helps the operators to expand its wireless broadband network in a cost effective way.

Moreover, Nokia Siemens has already won contracts from a Brazilian and a Chilean carrier, and with network spending ramping up in Brazil it will be an opportunity for the company to increase its Latin American market share.    

The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 12 cents for the third quarter with a growth rate estimate of (393.06%). For 2012, the Zacks Consensus Estimate stands at a loss of 38 cents with a growth rate of (199.54%) but for 2013, the Zacks Consensus Estimate stands at a loss of 1 cent with a growth rate of 96.55%.

Recommendation

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

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