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Nokia Corporation (NOK - Analyst Report) is all set to launch its latest Windows-based tablet during the early part of 2013. Launch of the tablet will put Nokia in direct competition with operating system (OS) partner Microsoft Corporation’s (MSFT - Analyst Report) own Windows tablet – ‘Surface.’

The new 10.1 inch tablet – will be based on latest Windows RT platform, which is the tablet version of the Windows8 OS and runs on ARM computer processor. Additionally, the tablet will have a HDMI output, two USB ports and an in built cellular radio.

Notably, the best features of the tablet are the presence of a physical keyboard in addition to the virtual one and a 10-hour battery backup. The second largest US carrier, AT&T Inc. (T - Analyst Report) will be the first operator to offer the tablet soon after its launch the US market.

During the earlier part of 2012, Nokia launched its Windows 8-based tablet but it was not very successful as it was quite late to launch the wireless gadget, as by then Apple Inc.’s (AAPL - Analyst Report) iPad 3 has established its strong foothold in different markets. Apple’s mini build on that success also performed well and is planning to launch iPad mini 2.

For quite some time now, Nokia has been struggling in the smartphone business due to stiff competition from Apple’s iOS and Google Inc.’s Android platform. Despite teaming up with Microsoft, Nokia hasn’t performed as expected. However, the latest Lumia 920 and Lumia 820 have performed better than its predecessors and are witnessing supply shortages.    

According to research firm IDC, tablet market is expected to grow at a 2012-2016 CAGR of 23.3% with Windows-based tablets projected to grow the highest. Furthermore, Apple’s tablet market share slumped to 50.4% in third quarter of 2012 from 65.5% in second quarter of 2012.

We believe if Nokia can price the tablet competitively it could create its own space in the tablet market. However, despite a decline in market share, vending off Apple’s competition in the lucrative North American market would be the biggest challenge for Nokia.

We retain our long-term Neutral recommendation on Nokia Corp. Currently, it holds a short term Zacks #3 Rank (Hold).

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