Nokia (NYSE:NOK) is expected to announce its Q1 2013 earnings on April 18. The handset maker has come a long way since last year when its Symbian smartphone sales were falling fast and Windows Phone (WP) was relatively slow to pick up the slack. Last year’s Q4 marked a turnaround of sorts as a successful launch of WP8 and new Lumia models together with strong holiday demand, finally saw WP outselling Symbian by a ratio of 2:1.
It is no small feat that Nokia managed to more than quadruple its Windows Phone sales y-o-y banking, on the launch of just a couple of high-end Lumia models, the 920 and the 820. The company has since launched cheaper Lumia options, the 720, the 620 and the 520, targeting emerging markets, but it remains to be seen if Nokia will be able to sustain the high initial demand for Lumia in the subsequent quarters, against the onslaught of Samsung (OTC:SSNLF), Apple (NASDAQ:AAPL), and a resurgent BlackBerry (NASDAQ:BBRY). In this context, Nokia’s Q1 earnings release is very important since it will provide us with the first insights into the long-term viability of Windows Phone in general and the Lumia in particular.
Low-End Windows Phones and Carrier Partnerships Key
Specifically, we will watch Lumia’s performance in the emerging markets of South Asia, the Middle East and Africa very closely, for it is these markets where the Nokia brand is still very popular. The recently launched Lumia models have expanded Windows Phone 8′s reach to cheaper price points and should help address Nokia’s recent slump in emerging market sales. While the Lumia 720 and 620 are mid-range smartphones, the Lumia 520 is priced at less than $200 and positions Nokia well against the onslaught of cheap low-end Android smartphones, in the emerging economies of China and India (see "Nokia Looks To Stem Market Share Decline With More Affordable Lumias, 620 And 520").
In order to push WP8 into these markets, Nokia has garnered support from the Chinese carriers for the latest Lumia models. The Lumia 920 was launched in China on both China Mobile (NYSE:CHL) and China Unicom at the end of last year, and reports claimed that overwhelming demand had led to stock sell-outs within hours. Nokia has said that it will launch the cheaper 720 and 520 on China Mobile as well, further strengthening its relationship with the world’s largest wireless carrier. The fact that Nokia is launching its low- to mid-range Windows Phones before Samsung or LG do the same, and before BlackBerry gets to launch its mid-range BB10 handsets later this year, should also give it a significant head start over the rivals in the emerging markets. It will also be interesting to know if the situation at the supply end has improved after Q4, when Nokia had problems meeting demand and could have sold even more Lumias had it not been supply constrained for most of the quarter.
Apart from the mobile device division, we will be closely watching the company’s comments on the future of its wireless infrastructure JV with Siemens, Nokia Siemens Networks (NSN). A six-year old shareholder agreement between Nokia and Siemens ended recently, giving both parties the freedom to do whatever they wish with their respective stakes, without the danger of being vetoed by the other. However, while Siemens will most likely sell off all or part of its stake in NSN, it is uncertain if Nokia is ready to do the same, considering that its stake in NSN is its most valuable business currently and has proved to be a very good diversification at a time when its mobile division is struggling to get back on its feet (see "Nokia Faces Tough Decision On NSN’s Future As Siemens Plans Exit").
That said, NSN isn’t Nokia’s core focus and the company will be looking to eventually sell its stake in the division and use the cash to fund a turnaround in its mobile division, or return some of the cash to its shareholders. However, since NSN doesn’t have a track record of sustained profitability, it will be tough to command a good valuation in the market. It is therefore important for Nokia that NSN sustains the profitability it achieved in Q4 for a few more quarters as well. NSN’s Q1 results will be very important in this context, and give us an indication of the timeframe when Nokia could look to relieve itself of the division.
Disclosure: No positions.