When it comes to earnings there are BEATS, and there are ... beats. Nokia (NYSE: NOK) found a way to manage the latter in Q4, yet investors are acting as if it were much more like the former.

Shares of the Finnish phone maker finished the day up about 2.5% on slightly better-than-expected fourth-quarter results. Revenue fell 21% while adjusted profits came in at 6 euro cents a share, 2 cents better than Wall Street's estimates.

That's about as good as the news gets. Big gains by Apple's (Nasdaq: AAPL) iPhone and Android handsets from the likes of HTC and Samsung have taken a toll on Nokia's core business:


Q4 2011

Q4 2010

Y-o-Y Growth

Feature phones sold 93.9 million 95.0 million (1%)
Feature phone revenue (EUR) 3,040 million 3,948 million (23%)
Smartphones sold 19.6 million 28.6 million (31%)
Smartphone revenue (EUR) 2,747 million 4,396 million (38%)

Source: Nokia press release.

Ugh. Just ... ugh.

In the same quarter in which Apple sold 37 million iPhones, Nokia managed to sell just 19.6 million smart devices, including "well over 1 million" Lumina Windows Phone handsets in partnership with Microsoft (Nasdaq: MSFT).

Yet the most disturbing part of Nokia's report comes on the cash-flow line. The former Finnish phenom reported a 74% drop in operating cash flow, to 634 million euros. Liquid assets declined 20% as investments skyrocketed, adding harsh reality to a difficult truth Nokia investors have to live with: CEO Stephen Elop has made an all-in bet on Windows Phone that has yet to pay off.

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