If higher ASP is the start of a new trend -- and I believe it is -- net income will likely jump as operational leverage kicks into a higher gear. In addition, Nokia's media phone division (consisting of higher-end consumer phones) stopped bleeding money over the last couple quarters and went solidly into the green. The division's operating profit margins of 14% still have plenty of growth ahead of them, since they are much lower than the mobile group's 17% operating margins.
Even the U.S. market, which Nokia mostly lost a couple years ago to Motorola's
At today's valuation of about 18 times 2006 estimates, Nokia is no longer a value manager's dream per se. But as earnings estimates start climbing, it is likely to turn into the growth and momentum managers' paradise.
Vitaliy Katsenelson is a vice president and portfolio manager with Investment Management Associates, and he teaches practical equity analysis and portfolio management at the University of Colorado at Denver's Graduate School of Business. He also writes for the Financial Times and Minyanville.com. He and his company own shares of Nokia. The Motley Fool has a disclosure policy.