Given that Nokia (NOK1V) issued an earnings warning less that halfway through the second quarter, it comes as no surprise that Nokia's second-quarter results were something of a train wreck. Handset volumes plunged at both the high end and low end of Nokia's portfolio, and the company posted an operating loss and burned cash. We expected as much, and therefore our fair value estimate remains unchanged. Our thesis remains that while there is a chance that Nokia could fall into a death spiral if its Windows phone efforts fail, we still think that the firm is more likely to survive.
Performance in the handset business was, as expected, simply awful. This was due to a couple of reasons. First is the underlying issue of Nokia's transition from Symbian to the Windows phone platform. Second is the excess inventory issues that emerged during the course of the second quarter.
Looking toward the next couple of quarters, we think that Nokia will be judged on two counts--how well it manages the decline of the Symbian handset business, and the progress it makes toward the launch of its Windows phones.
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