Tough Time for Nokia

Nokia Corporation ( NOK - Analyst Report ) was hard hit as Samsung Electronics Co. unveiled its new Windows Phone8 software-based smartphones. Samsung places it in direct competition with Nokia’s Lumia smartphones.

Samsung became the first company to launch smartphones based on Windows Phone8 software and tipped developer Microsoft Corporation’s ( MSFT - Analyst Report ) biggest Windows Phone partner Nokia who expects to release its own version in September.

Additionally, Samsung also revealed a tablet based on Windows RT, which is the tablet version of the Windows 8 operating system. We believe that the South Korean giant is trying to reduce its dependence on Google Inc.’s ( GOOG - Analyst Report ) Android operating system after it lost a crucial patent battle to major competitor Apple Inc. ( AAPL - Analyst Report ) .

This is the second time Nokia got beaten by Samsung after it tipped the Finish handset maker as the world’s largest handset manufacturer. However, it is expected that the success of Samsung’s new offering will take some time as windows phone is still not the preferred choice for customers and data from IDC shows that Microsoft only has a 3.5% of smartphone market share while Android and iOS accounted for 68.1% and 16.9% respectively.

Nokia is currently engulfed with problems and has been losing market share to Apple Inc.’s iPhone and a gamut of smartphones that run on Google Inc.’s Android operating system. In an effort to improve its falling smartphone market share, the company ditched its Symbian operating system and teamed up with Microsoft Corporation to develop Windows-based smartphones.

We believe that if Samsung can price it aggressively the devices which are slated to release in the later half of the year will pose a major threat to Nokia’s own Windows Phone8 based offerings. Furthermore, on the back of it’s advanced features it will elevate the expectations from Nokia’s Windows Phone, which if it fails to meet will bring additional woes for the company.

The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 12 cents for the third quarter of 2012 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%) while for 2013, the Zacks Consensus Estimate stands at a loss of 1 cent with a growth rate of 96.67%.

Recommendation:

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