The other day Nokia Corporation (ADR) (NYSE:NOK) cut its dividend for the first time in over 20 years. Does it matter? Not even a little bit. The company had a dividend yield of almost 3.8%, which is very high compared to the rest of the industry. The stock fell approximately 6% after the results were announced. I believe this dip is an aberration and a misinterpretation of the quarterly results. Nokia has traded in the range of $1.63 - $5.87 throughout the last year. This high volatility shows that no one is buying the stock for its dividend yield, and the management has taken the correct decision by cutting the dividend entirely.

The company cannot afford to raise cash from the debt market due to its bad credit rating, and this move will ensure more liquidity for its turnaround bid. I believe the valuations should significantly improve once the market really understands the significance of these results. Therefore I reiterate a strong buy rating on the stock.

Quarter at a Glance

Nokia had been under investor pressure to report solid Lumia sales and improved operating margins. A couple of weeks ago the company preannounced its 4^th quarter results and pleasantly surprised investors with profitability in the devices segment. Yesterday the company announced its detailed earnings for the quarter.

Nokia reported revenues of $10.61 billion and EPS of $0.05, marginally missing the Street’s EPS estimates of $0.06. There was a 33% increase yoy in operating profit, which was reported at $838 million. Nokia ended the fiscal year with $5.76 billion in cash and equivalents, down approximately 58% yoy. This is one of the key takeaways from the report and shows that the giant has been able to successfully implement its cost cutting measures.

The NSN (Nokia Siemens Network) and Location & Commerce segment continue to generate profits. The revenues from NSN were up 5% with $5.26 for the quarter and profit from the segment was reported at $1.11 billion, a decline of 11%. The company is aiming to increase the margins from the segment and aims to save approximately $1.3 billion in cost by the end of 2013. Location segment contributed $0.37 billion to revenues a yoy decline of 9%.

Devices & Services Segment

The biggest surprise has been the good performance of the devices segment. The market was expecting total devices sold to be 86 million and smartphones to be 7.8 million.  The company met the overall device sales target but missed the smartphone sales target by 18%. This is excellent considering that the Lumia was available only for the last half of the quarter and was still not fully available in South East Asia, China and India. Once the devices, especially Lumia 920, are made available globally, smartphone sales should improve significantly. The company also disclosed that there have been supply constraints which have resulted in a slow global rollout of the Lumia devices.