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We reaffirm our long-term Neutral recommendation on Nokia Corp. (NOK - Analyst Report) as its third-quarter 2012 financial results managed to beat the Zacks Consensus Estimates. Nevertheless, Nokia remains in dire straits as its success hinges on the market acceptability of its upcoming Lumia smartphones based on Microsoft Corp. (MSFT - Analyst Report) developed Windows Phone 8 software.

The company has lost its global market leadership position in the mobile phone (both smartphone and feature phone) industry to Samsung. We remain skeptical regarding the success of the Nokia-Microsoft mobile venture. Earlier, all three major credit rating agencies, viz, S&P, Moody’s, and Fitch, downgraded Nokia to junk category with a negative outlook. Moreover, management has provided a weak financial outlook for the ensuing fourth quarter.

Meanwhile, Nokia’s cash position has solidified and it holds a powerful patent portfolio. We remain on the sidelines until the launch of Windows 8 based devices.

Nokia declared that multiple factors negatively affected the company’s core Devices & Services segment in the third quarter of 2012. The negative consequences of these factors will spill over to the fourth quarter also. For the fourth quarter of 2012, Nokia projected its Devices & Services operating margin to be approximately negative 6%, plus or minus 4%.

In the third quarter of 2012, Nokia sold over 2.9 million Lumia handsets in 15 markets. Moreover, Nokia’s management has also hinted that its next-generation smartphone based on upcoming Windows 8 software is expected to be released in November 2012, which we believe is another positive catalyst for the company, going forward. Upcoming Windows Phone 8-based Lumia 820 and Lumia 920 will lunch on AT&T Inc.’s (T - Analyst Report) network.

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