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Nokia (NOK), a turnaround story in the smartphone world, is set to report its quarterly earnings on October 18th. Despite its heavy fall from grace, and its several false starts in its attempt to gain back credibility and market share in the smartphone space, the company is betting it all on its upcoming "Lumia" series of smartphones driven by Microsoft's (MSFT) Windows Phone 8 operating system. Early impressions of the phone have been largely positive with reviewers praising nearly every aspect of the device including the top-notch camera, build-quality, LTE-support, and processing speed.

However, as nice as this phone may be, it has not launched yet. This earnings report will be about having enough cash on hand to give it one more shot with the Lumia 920 and 820 series of phones launching later this year.

Last Quarter - A Recap

At the last earnings report, Nokia reported a $1.83B net loss. Average selling price of its phones came out to $59, and the company's net cash balance fell from $6.35B to $5.44B, which seemed to placate investors as this was not lethal to the company's financial health for the time being.

On the bright side, Nokia saw shipments of its Lumia increase to 4M units, up from Q1's 2M. Further, a 4% Q/Q increase in feature phone units encouraging, even if smartphone sales dropped 14% and ASPs of the Lumia 900 and 800 dropped by 15% Q/Q.

Q3 - What To Expect

The average analyst estimate for sales in Q3 comes out to $9.03B or a 28.8% decline from the year-ago period. Analysts also expect the company to post a $0.13/share loss on average. The quarter obviously won't be good, but it will be important for investors to keep an eye on the company's cash position. If the company is able to keep expenses reeled in and patch up the bleeding until the Windows Phone 8-based Lumia phones, then the company will be able to continue the fight. The company has been good about this over the last several quarters, though, so there's no reason to expect a major change here.

The Future

As most followers of Nokia know, the company's life depends on its Windows Phone 8 offerings. While Nokia's phones seem to be well designed, it is unclear how well Microsoft's Windows Phone 8 operating system will do in winning over the hearts and wallets of the consumer. Adoption of the previous iterations of the Windows Phone platform has been weak, and the Google (GOOG) Android phone space has only become more competitive over time. So, what if Windows Phone 8 is a flop?

In that case, Nokia would have no choice but to become an Android phone maker. This wouldn't be particularly difficult as Android is free-to-use and compatible with both ARM (ARMH) and Intel (INTC) CPU platforms. Further, the software ecosystem is quite developed and globally the platform has been gaining share over Apple's (AAPL) iOS. Further, despite the seeming "uniqueness" of being on Windows Phone 8, the major players in the Android world will, unsurprisingly, be producing Windows Phone 8 devices.

If this is the case, will Nokia have time to once-again readjust its course? The company probably has enough cash to try one more time if Lumia on Windows Phone 8 is a flop. That's why the net cash position is the single most important thing to watch during this transitional period.

Conclusion

In short, the only thing that matters is how much cash Nokia had at the end of the quarter. ASPs are likely to be down, unit sales are also likely to be down, but that's expected. The big driver will be the Lumia Windows Phone 8 phones in Q4 and beyond, and until that launches, the only thing investors should really care about is how much financial ammo the company has to weather any further storms.

Source: Nokia's Upcoming Earnings Report - What To Expect

Additional disclosure: I may trade out of my AAPL position at any time