Nokia Corp. (NOK - Analyst Report) recently received a boost as the Fitch Ratings stated that the company’s performance in the last 12 months has surpassed its expectations. However, Fitch stated that the primary reason for this above expected enhanced performance is the strong showing of the company’s former “Nokia Siemens Networks” (NSN) segment.
Nokia recently gained 100% ownership of this division after purchasing Siemens AG’s 50% stake of this segment for approximately $2.2 billion and renamed this division as “Nokia Solutions and Networks” (NSN).
In the second quarter of 2013, NSN generated $3.641 million of revenues. Quarterly adjusted operating profit was approximately $429.5 million, surged an enormous 1,072% year over year. Adjusted operating margin was 11.8% compared with 0.8% in the prior-year quarter.
We believe that the improvement was mainly spurred by encouraging result in the lucrative North American region, which was the weakest sector of the company. Nokia’s acquisition of 3G/4G CDMA network gear businesses of Motorola Solutions Inc. (MSI - Analyst Report) strengthened its foothold in North America.
NSN has cut a deal with content delivery network operator CDNetworks to accelerate the delivery of mobile content. Liquid technology is a software solution for network infrastructure that drastically reduces the need for dedicated hardware. NSN stated that its new Liquid Applications will change the competitive landscape of the telecom infrastructure gear market by revolutionizing base stations.
Nevertheless, Fitch remains concerned about Nokia’s core mobile handset division. Nokia has lost its market leadership in the global mobile phone market to Samsung. The company still not able to revive its lost leadership in the smartphone segment despite introducing the next-generation Lumia series of products based on Windows Phone software of Microsoft Corp. (MSFT - Analyst Report) .
The disappointing performance of the devices segment is the main reason that Fitch Ratings reaffirmed Nokia's long-term IDRs at BB- with a negative outlook. The rating firm stated that the outlook will be raised to Stable if Nokia can successfully fortify its position in the global smartphone segment through its Lumia series products. Nokia currently has a Zacks Rank #3 (Hold).