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The hard times for Nokia Corporation (NOK - Analyst Report) witnessed in 2012 seems to be partially over as the Finnish handset manufacturer reported a better-than-expected performance in the fourth quarter of 2012 in its preliminary financial report. Good shows by the company’s flagship smartphone, Lumia 920 along with the ongoing cost cutting initiatives are mainly attributable for the impressive results.

Strong Performance in Fourth Quarter

This is for the first time in almost a year that the company is reporting an increase in smartphone shipments.

The preliminary report shows that Nokia sold 4.4 million Lumia devices in the fourth quarter of 2012 compared to only 2.9 million units in the previous quarter, marking a sequential growth of almost 52%. Sales of smartphone and total handset business stood at 6.6 million and 79.6 million respectively compared to with 6.3 million and 76.6 million at the end of the third quarter of 2012. The shareholders welcomed the news as the stock soared 18.67% on Thursday to close at $4.45 at Nasdaq.

Financially also the company’s device and service segment performed better than the last quarter, reporting a sequential growth of almost 15%.

Nokia-Siemens Network (NSN) – the company’s equal joint venture with Siemens AG (SI - Analyst Report), has also performed better than expected as the company is concentrating on higher margin wireless network. Additionally, the company’s strategic policy of retrenching employees and selling its non-core units seems to have helped the company, as it is all set to deliver solid financial performance in the coming quarter.

Lackluster 2012

2012 has been a real bad year for Nokia as the company lost its title as the world’s largest cell phone manufacturer to Samsung Electronics. Amid stiff competition from Google Inc.’s Android and Apple Inc.’s (AAPL - Analyst Report) iOS-based phones, the company lost its smartphone leadership. To make matters worse, the company’s credit status was downgraded to junk and the company has to cut as much as 10,000 jobs.    

Are Good Times Really Back for Nokia?

It appears that the company’s decision to join hands with Microsoft Corporation (MSFT - Analyst Report) is finally paying its dividend as the large screen Lumia 920 with some great imaging and mapping feature is attracting more customers. Reportedly, Nokia witnessed supply shortages in several countries for its Lumia 820 and 920, which otherwise could have yielded a better outcome.  

According to research firm IDC, at the end of the third quarter, Samsung and Apple have shipped 56.3 million and 26.9 million smartphones and also garnered a far significant market share in the smartphone market. With Lumia 920 bringing in a fresh breadth of life for the company, we believe Nokia needs to be much more consistent to turn the tables in its favor.

Things are really looking bright for the struggling handset manufacturer in the last few days.  But that does not mean everything has started to run smoothly for the company. Despite the impressive Lumia performance, the total handset sale in fourth quarter is expected to touch 86.3 million handsets, down 24% from the previous year quarter. Along with it the quarterly sales of $5.1 billion failed to match the sales figure of $7.8 billion, reported in the fourth quarter of 2011.  

However, moving forward the company expects to overcome its supply shortages associated with Lumia 920 and wants to expand in emerging markets like India, which has been a strong hunting ground for the company.    

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

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