The Nokia & Microsoft partnership
So far, the decision Nokia Corporation (ADR) (NYSE:NOK) made of abandoning Symbian and MeeGo in order to focus its development entirely on the Windows Phone Operating System has proved a very wise business decision. Nokia not only benefits from using a secure OS (according to Symantec, Windows only has 2 documented vulnerabilities) with a strong brand in the corporate world, it also receives $1 billion a year from Microsoft as a compensation for focusing on developing only for Windows Phone.
Both companies are struggling to create a third ecosystem in the smartphone world, and they may succeed next year as Lumia sales continue increasing. Microsoft, on the other hand, is providing an integrated experience across all of its platforms (tablets, PCs, Xbox and smartphones) in order to make the transition of Windows PC users to Windows Mobile much easier and comfortable.
Nokia Siemens Networks (NSN)’s operating margin is improving
Apart from smartphones and feature phones, Nokia Corporation (ADR) (NYSE:NOK) has one more business unit: NSN, which specializes in research and development of mobile communication infrastructure. NSN’s focus is mobile broadband, and considering this market has experienced sustained growth in the past years, the plans of Nokia to fully acquire NSN during the third calendar quarter of 2013 makes a lot of sense.
Although NSN’s revenue is down 11% from the year-ago quarter, the 12% increase in adjusted operating margin looks attractive. If things go north, China Mobile’s massive project to build a 4G TD-LTE network in China could imply much stronger sales in the last quarter of 2013.
The smartphone war isn’t over
A turnaround is never easy, especially in a market where Apple and Samsung together have more than 80% of it. Palm couldn’t make it and BlackBerry Ltd (NASDAQ:BBRY) is struggling to survive. In this context, the moderate success of the Lumia is admirable.
However, Nokia and Microsoft are still far away from establishing successfully the Windows Phone OS as a third ecosystem. But we should not forget that Nokia is still a strong player in the mobile phone market, and a very appealing brand to price sensitive users in emerging markets. Unlike Apple Inc. (NASDAQ:AAPL), Nokia Corporation (ADR) (NYSE:NOK) has top-selling budget devices. And unlike BlackBerry Ltd (NASDAQ:BBRY), Nokia doesn’t have to promote its own ecosystem. It leaves that job to Microsoft and instead focuses on developing better, cheaper smartphones.
How about the shrinking feature phone market? Sure, many of Nokia’s customers still use feature phones, but as both their income and the smartphone penetration rate in their economies increase, they could make the transition to the smartphone. This could lead to massive sales in the future and consolidate Nokia Corporation (ADR) (NYSE:NOK)’s historic turnaround. In this way, Nokia’s story in the smartphone market isn’t over. It’s about to start.
The article Why Nokia Is a Historical Turnaround in the Making originally appeared on Fool.com and is written by Adrian Campos.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL). Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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