Just-released third-quarter earnings for Nokia (NYSE: NOK) show a company on the brink.

In a desperate scramble to catch up to Google's (Nasdaq: GOOG) Android and Apple (Nasdaq: AAPL) in the smartphone game, once-dominant mobile-phone manufacturer Nokia is pulling out all the stops, including radical internal restructuring and a last-chance partnership with Microsoft (Nasdaq: MSFT).

The cold, hard Finnish facts
First, the bad news:

  • Revenue is down 13%, from $14.3 billion in Q3 2010 to $12.5 billion in Q3 2011.
  • Operating profit is down 60%, from $881 million to $350 million.
  • Earnings per share are down 79%, from $0.19 to $0.04.

In a memo to employees at the beginning of this year, Nokia CEO Stephen Elop described his new company's position to that of "being on a burning oil platform," with the only choice left to jump into the uncertain waters below. The disheartening numbers you see underline Elop's dramatic statement.

Now for some better news, and some context

  • Cash flow from operating activities is up 94%, year over year, from $610 million to $1.18 billion.
  • Cash and other liquid assets are up 16%, from $6.1 billion to $7 billion.

The company is generating a lot of cash, at an increasing rate, and has upped its already healthy cash and liquid asset position. This should help Nokia stay afloat through its current dramatic period of restructuring, the most important aspect of which is about to begin. In addition, large piles of cash give the company flexibility to invest in beneficial segments.

Never count out companies with fat balance sheets, Fools
Nokia's first smartphone born from its partnership with Microsoft has already received good reviews. Microsoft, though not the sexiest tech company in the world, knows software, and it has deep pockets. Nokia, meanwhile, knows manufacturing. Together, the two companies should be yin and yang to each other.

It's a big world, and the smartphone market is only growing. There's plenty of room for a third-place finisher to do well. And Nokia still ships more than one-third of the world's handsets, so it has the logistical infrastructure in place to pull off a big product launch and keep it going strong.

Trading at around $6.50 and with a P/E of 14, Nokia is very undervalued and has nowhere to go but up. Keep an eye on Nokia on My Watchlist, a free service of The Motley Fool that easily lets you keep track off all the stocks on your investing radar.