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Buy Nokia Corporation (ADR) (NOK)?

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Nokia Corporation (ADR) (NYSE:NOK)It all depends on the type of investor; after all, Nokia Corporation (ADR) (NYSE:NOK) is a risky investment. The company is still losing money and should probably be avoided by risk-averse investors. However, Nokia Corporation (ADR) (NYSE:NOK) is worth a look for investors who like high risk-high reward investments because the company is making solid progress on its turnaround.

The numbers

Nokia Corporation (ADR) (NYSE:NOK) recently reported its first quarter earnings. In Q1 2013, Nokia had a net loss of €0.07 per share. At first glance it looks like Nokia took a step back in its recovery; after all, in Q4 2012 Nokia posted a profit €0.05 per share. However, Q4 is the holiday quarter, so a drop in profits from Q4 to Q1 is normal. In addition, year over year comparisons in performance are more important than quarter to quarter changes.

In terms of year over year numbers, Nokia Corporation (ADR) (NYSE:NOK) actually arguably had a better Q1 than Q4. Yes, in Q4 Nokia posted a positive EPS of €0.05. This was a big improvement over the negative EPS of €0.29 in Q4 2011. However, the 2011 number includes about €1 billion of impairment of goodwill, which is a onetime non-cash charge. In terms of non-IFRS numbers, which excludes special charges, Nokia’s EPS was flat year over year in Q4. The following table looks at Q1 and Q4 non-IFRS EPS relative to the same quarter of the previous year.

Non-IFRS Q1 2013 Q1 2012 Q4 2012 Q4 2011
EPS (€) -0.02 -0.08 0.06 0.06

As you can see, Nokia’s non-IFRS EPS, while still negative, improved from negative €0.08 in Q1 2012 to negative €0.02 in Q1 2013. That is two quarters of flat or year over year improvement for Nokia Corporation (ADR) (NYSE:NOK). In Q3, Nokia’s non-IFRS EPS dropped from positive €0.03 in Q3 2011 to negative €0.07 in Q3 2012.

However, the numbers for Q1 were not all good. Nokia’s revenue plummeted by 20% year over year. Regardless, net profit is definitely more important than revenue because it is the amount the company makes after costs are deducted.

All about the Lumia

Furthermore, Nokia had a solid performance in its smartphone business. While Nokia operates three business segments (Devices & Services, HERE, and Nokia Siemens Networks), Nokia’s future largely rests on a successful comeback in its smartphone business. In Q1, Nokia shipped 5.6 million Lumia smartphones. This is an improvement on the 4.4 million Lumia smartphones it shipped in Q4. The 5.6 million Lumias is impressive because Q4 is the holiday quarter and businesses usually experience a drop between Q4 and Q1.

It should be noted that Nokia Corporation (ADR) (NYSE:NOK)’s Asha phone shipment declined from 9.3 million in Q4 to 5 million in Q1. However, Lumia shipment numbers are more important because they run Microsoft Corporation (NASDAQ:MSFT) Windows Phone OS, and the Lumia 920 targets the high end of the market (Asha is mainly for the lower end).

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