Buy Nokia Corporation (ADR) (NOK)?

Most importantly, Nokia expects the Lumia growth to continue. In its earnings release the company stated, “…Nokia expects the sequential growth in Lumia unit volumes to be higher than the 27% sequential growth in the first quarter 2013.” Moreover, Lumia shipments outpaced the overall smartphone market. Global smartphone shipments declined from 227.8 million in Q4 to 216.2 million in Q1.

Challenges

While Nokia Corporation (ADR) (NYSE:NOK) is making significant progress, the company still faces major challenges and significant risk. The biggest threats to Nokia are stiff competition from Apple Inc. (NASDAQ:AAPL)’s iPhone, and smartphones running Google Inc (NASDAQ:GOOG) Android. In Q1, Apple Inc. (NASDAQ:AAPL) shipped 37.4 million iPhones. In Q4, Android and iOS had 70% and 21% of total smartphone shipments worldwide, respectively. In comparison, Windows Phone only had a 2.6% market share. Having a large market share is important, because it can be hard to convince users to switch to a different ecosystem.

Furthermore, Nokia’s decision to go with Microsoft Corporation (NASDAQ:MSFT) could backfire if Microsoft Corporation (NASDAQ:MSFT) decides to stop pumping money into Windows Phone. Microsoft is a strong ally, but the small market share of Windows Phone is troubling. Android is an especially difficult opponent because Google Inc (NASDAQ:GOOG) licenses Android for free so there are many different hardware vendors that use Android. This negates Windows’ attribute of being licensable. One thing that is in favor of Nokia is that the smartphone market is still growing. In Q1, global smartphone shipments increased 42% year over.

The bottom line

Nokia is worth a look for investors who have a high risk tolerance. Nokia Corporation (ADR) (NYSE:NOK) has strung together two solid quarters. Most importantly, the company’s Lumia shipments improved from Q4 to Q1 and Nokia expects another increase in Q2. The company faces major challenges in the form of Android and iOS, but the growth rate of the smartphone market should work in its favor.

The article Is Nokia Worth Buying? originally appeared on Fool.com and is written by Alvin Gonzales.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.