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In the last four years, Nokia (NYSE:NOK) has gone from the leader in mobile phones to a relative laughingstock. However, with the release of Microsoft's (NASDAQ:MSFT) Windows Phone 8 and Nokia's own Lumia 920 smartphone the worm looks like it may finally be turning. Two major product lines have begun the turn-around for Nokia, which up until its Q3 earnings release were seriously in danger of burning through its prodigious cash reserves, Asha - touch-enabled proto smartphones for emerging markets like India - and Lumia - the line of Windows phones that began with the 800 and 900 in late 2011. So, the market was very kind, as it generally is to fallen giants, to a bit of pre-earnings good news when Nokia informed everyone that Lumia sales had exceeded expectations in Q4. Nokia sold 9.3 million Asha smartphones, 2.2 million Symbian smartphones, and 4.4 million Lumia smartphones.

Its Windows Phone strategy looked bleak this time last year when the 800/900, while good devices, gained zero market traction and some interest. These WinPhone 7.5 devices were, for intents and purposes, beta tests and stop gaps for the real WinPhone, version 8 that is built from the same micro-kernel as Windows 8. The limitations of WinPhone 7 's kernel held back the design specs for the entire generation of phones from every vendor, who, like Nokia, were working with Microsoft on the platform's potential, not its current state at the time.

Nokia's much-maligned CEO Stephen Elop kept stressing the longer game Nokia was playing. And even the nearly horrific 920 rollout presentation could not dampen the enthusiasm for what was the first Windows Phone to truly compete with the top of the market. As the current results have shown, management has delivered on its promise.

Nokia has always had a strong presence in China and developing a version of the 920 for China Mobile (NYSE:CHL) was an absolute necessity if it wanted to insert itself into the high-end smartphone market there. The first two shipments of the 920T sold out in under 30 minutes both times. The massive subsidy scheme China Mobile and Nokia cooked up may have something to do with it. But the point still stands that this phone is a hit and will nearly single-handedly solidify WinPhone's future in China. On the other end of the spectrum Nokia has the 505 - a WinPhone 7.8 entry level phone - and the 620 - a WinPhone8 entry level device - as well. Nokia and Microsoft's strategy for emerging markets is, rightly, to attack the high and low ends at the same time since subsidized phones on contract are a rarity unlike in the U.S. where that model dominates.

Currently, Samsung (OTC:SSNLF), Nokia, and Apple possess 22.9%, 19.2%, and 5.5% share of global mobile device market. Considering just smartphones, Samsung and Apple jointly possess 46.5% share of the market. Where Nokia and Lumia are going to win market share is not in the U.S. -at first if at all - it will be in emerging markets where Apple (NASDAQ:AAPL) has refused to play - India - or be accommodative -China Mobile. Finally, however, Apple is considering launching a relatively cheaper iPhone to cater the needs of the rising middle class of Asia Pacific, as stated by John Sculley. I, along with a few others, saw Apple's margin compression, use of patents to bully and unwillingness to play ball in China and India as a weakness in its strategy and as an opportunity for Nokia and I was right then.

The low-end smartphones will have an estimated 31% share in global handset market by 2016. Having built a former empire on providing low-cost great phones to the masses around the world, anyone who thinks Nokia is not capable as a company to exploit that trend is kidding themselves - or trapped short.

Nokia has, rightly, gone on an austerity drive. Nokia employed 131,553 people when Elop joined. After 2 years, there has been a reduction of 26,288 people. In addition to this, 820 jobs are also being outsourced to two Indian companies in order to raise operational efficiency. As a result, operating expenditure has fallen consistently.

So, with the Q4 numbers in and Nokia returning to profitability and seeing positive cash flow - the biggest concern for the company this time last year - the real question is volume. A lot of the Lumia sales in Q4 came from heavily discounted 800's in the UK and other places around Europe. Market share numbers in places like Finland, Italy and the UK are all healthy and rising quickly. In the U.S., however, the bump has been a lot smaller. Though, I do note that average prices for used Windows Phones, especially Lumias, on eBay have increased since the launch of the latest generations, indicating that demand is there.

What is important at this point is to remember that much of the Lumia rollout this year was staggered over time. And Nokia was very careful about supply, under-producing to ensure inventory sell through and ramping up production if the phones sold well. The initial wave has done well and the new supply is arriving. The January market share numbers will be telling as will the company's Q1 results which will give investors a full quarter of sales to consider. Nokia and Windows Phone are still very much a speculative play at this point and the mixed reception of Windows 8 is not helping.

While other segments of Nokia - notably Nokia Siemens Network - have turned around faster than others the company's future rests on Lumia and its relationship with Microsoft.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Lumia Lifts Nokia Back To The Black