It says something about a company (and its stock) when the market is apparently willing to hand out plaudits on the basis of "things were less terrible than we thought." It's hard to say that Nokia (NYSE:NOK) is really on the way back, but maybe this fading mobile phone leader has at least found the path to take.

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Stepping Over a Low Bar
Sell-side analysts didn't expect a lot from Nokia, but the company at least delivered that much. Revenue was up 11% sequentially for the fourth quarter, though down 21%. Both the "device" (that is, phones) and networks business saw basically the same 11% sequential growth (networks was a little stronger), but the year-on-year drop for devices was still pretty steep, down almost 30%. (For related reading, see Research In Motion Sliding Toward The Cliff.)

All things considered, Nokia seems to be getting its profits into better order. Gross margin was down from last year, but up reasonably well on a sequential basis, with device gross margins still lagging the company average. Adjusted operating profit was down 56% from last year, but up about 90% on a sequential basis.

Bleeding Share, but Bleeding Slower
Nokia shipped about 6% more devices than in the third quarter, but 8% fewer than in the year ago period, and the company continues to lose share in the global mobile device market. Nokia is still the world leader, but that's largely on the strength of cheap low-end phones. In the smartphone realm, unit growth of 17% was progress, but Nokia is falling further behind industry leader Apple (Nasdaq:AAPL) and not exactly beating up on much-maligned Research In Motion (Nasdaq:RIMM).

Still, that may all be about to change. The company's first product developed in cooperation with Microsoft (Nasdaq:MSFT), the Lumia, is selling pretty well in Europe and about to hit the U.S. market this spring. Reviews have been quite positive and the price point seems pretty compelling. Of course, it's hard to say exactly how well it's doing; management talks about "well over 1 million" shipments, but the lack of a firm number suggests it may be short of the 1.3 million target that's out there.

Hardware in a Tough Spot
Some of the positive reaction to Nokia's earnings can also be traced to the weak expectations for the company's hardware (networks) business. Texas Instruments (NYSE:TXN) gave very weak guidance regarding the baseband business, while Ericsson's (Nasdaq:ERIC) recent report was terrible in its own right.

To an extent, this is nothing new. Plenty of companies, including Acme Packet (Nasdaq:APKT), Juniper (Nasdaq:JNPR) and Alcatel Lucent (NYSE:ALU), have reported very weak spending trends from carriers. Insofar as that goes, Nokia's performance was less bad than it might have been. Again, that's where Nokia is today as a company - less bad is about as good as investors hope to see.

The Bottom Line
Nokia arguably deserves more credit than it gets. Management has really tightened up the margins and the fact that the company not only got a phone to market so quickly from its Microsoft partnership, but a good phone at that, speaks well to the new direction.

On the flip side, the company is trying to elbow its way into the crowded non-Apple smartphone market and that's not going to be easy. What's more, though everyone seems to think that the carrier spending market will improve, nobody seems to know when. Likewise, Nokia's Nokia Siemens venture with Siemens (NYSE:SI) is still an albatross that both would be happy to be rid of.

Not to oversimplify things, but the Nokia investment thesis really boils down to whether you believe Nokia can stem its share losses and leverage its incomparable global distribution channel to market competitive smartphones that people actually want to buy. They don't have to beat Apple, but they do need to distinguish themselves from Google's (Nasdaq:GOOG) Motorola, Samsung, HTC and the aforementioned Research In Motion. As turnaround stories go, Nokia seems to be in relatively good shape, but there is still a long road back to normal. (For related reading, see Turnaround Stocks: U-Turn To High Returns.)

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.