Nokia Rockets Skyward


Following a rally that had already seen Nokia rocket 130% over its 52-week lows, the company is surging this morning, adding 15% as of 10 a.m. EST.

The cause is a preannouncement of next quarter's earnings that was better than expected. Two areas are especially notable. For one, Nokia has shipped 4.4 million Lumia phones. The other area is that the company's Nokia Siemens Networks unit continues outpacing competitors like Alcatel-Lucent , which itself had to seek new financing from Goldman Sachs amid continuing poor cash flow . Last quarter, Nokia Siemens pushed its adjusted operating margins in that segment up to between 13%-15%. That beats the company's previous outlook of operating margins of 8% in the unit, plus or minus four percentage points.

Last time Nokia reported earnings, I noted how the strength of Nokia Siemens had become a surprising area of outperformance for the company. Nokia Siemens' competitors have been burning cash in a very difficult telecom spending environment. As Nokia tries turning its mobile phone business around, it can use all the cash it can get, so seeing Nokia Siemens performing so admirably has turned a potential weakness into a strength. Next quarter Nokia Siemens is estimating operating margins will retreat back to approximately 3%, but the unit has also strongly outperformed expectations the past two quarters, so we'll see where that winds up.

Moving on to Lumia: 4.4 million units is still small potatoes in a smartphone market that looks poised to cross 200 million sales in the fourth quarter. Yet, reactions to earnings is all about expectations, and Nokia appears to have surpassed expectations. The phone had strong partnerships across the globe, with AT&T pushing the Lumia 920 as a high-end competitor to Apple's iPhone 5. Surveys indicated the Lumia was the third-best-selling phone on AT&T's networks in early December. Not only that, but the Lumia series got a big push from China Mobile on its network as (once again) counter-programming to the iPhone, a phone which China Mobile still isn't selling.

The point here is that Lumias have received strong promotion away from Nokia's traditional strength in European markets. That promotion helped Nokia exceed expectations last quarter.

4.4 million Lumias must still be put in context of expectations running just south of 50 million iPhones and the possibility of 150 million Android units being sold in the fourth quarter. Is that enough momentum for Nokia to begin making its comeback? Today investors are voting "yes," but it's important to remember the continuing challenges facing the company.

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Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple and Goldman Sachs. The Motley Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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