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Nokia Corporation’s (NOK - Analyst Report) low-end smartphone – Asha has performed well in the fourth quarter of 2012, outpacing the good show of its flagship product Lumia. Gaining significant market traction in the emerging market is primarily attributable for the good results.

Nokia’s preliminary report shows that the company has sold 9.3 million units of Asha range of handsets in the fourth quarter, far better than the 6.5 million sold in the previous quarter, thereby posting an impressive sequential growth of 43%.

On September 25, 2012, Nokia launched two new affordable touch screen phones based on Series 40 operating system to improve its presence in the mass market. The budget phones have features like – 3 inch screen, 800 MHz processors, a 2 mega pixel back camera and are preloaded with EA games.

Apart from Asha, the company’s high end smartphone Lumia sold 4.4 million 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%. Encouraging contribution from Nokia’s high and low end smartphone range has resulted in the better than expected performance by the company in the forth quarter. 

Although Lumia is taking lion’s share of the credit for the improved show from the Finnish handset manufacturer, we believe Asha’s encouraging sales figures act as a backup support for Nokia, while it continues to aggressively market Lumia. 

Nokia faced a lackluster 2012, 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.

However, the company’s decision to join hands with Microsoft Corporation (MSFT - Analyst Report) is finally paying its dividend as the latest Lumia 920 and Lumia 820 have performed better than its predecessors and based on that Nokia is reporting an increase in smartphone shipments for the first time in a year.

Historically, China, India and Latin America have been strong markets for Nokia and off late the company has seen its Asha sales grow in those regions. Low per capita income and increased wireless Internet usage have mainly contributed to the inspiring show where, customers still prefer low budget phones. However, with Android quickly penetrating these markets, it remains to be seen whether Nokia can sustain this momentum.   

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

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