Nokia (NYSE:NOK) reported earnings this morning, and no one was particularly shocked to see smartphone sales continue to deteriorate. The company shipped just 6.3 million smartphones last quarter, which is a long ways down from the more than 25 million units the company was shipping the same quarter back in 2010.
Yet past Lumia launches became an afterthought when consumers learned they wouldn't upgrade to Windows 8. As bad as the pain in Nokia's smartphone business was last quarter, they've made a make-or-break bet on their upcoming Windows 8 lineup of phones. Nokia's betting its newer phones can make a market-share dent, and CEO Stephen Elop couldn't help but take a shot at Apple's (NASDAQ:AAPL) Maps missteps on the company's conference call, noting "As witnessed by the consumer response to our competitor's maps, people do want to ensure their smartphone delivers accurate mapping information, so they can reliably navigate their lives."
Instead of weak phone sales, the more surprising area in Nokia's earnings actually came from a different sement: networking. The company's Nokia Siemens unit saw operating margins soar to 9.2% on an adjusted basis, up all the way from 0.2% last year. Not only that, but sales saw an encouraging 3% jump from last year.
A gain of 3% in sales might not sound like much, but consider that in Verizon's (NYSE:VZ) earnings they highlighted capital spending is down 9.8% this year. Nokia Siemens is outperforming in a very tough market. Competitor Alcatel-Lucent (NYSE:ALU) last reported sales down 7.1% year-over-year and its margins are now well below Nokia Siemens.
Now, the point isn't that Nokia Siemens will be a catalyst that revives Nokia's flagging fortunes. Instead, the broader idea is that most companies in Nokia Siemens' space are burning cash. Alcatel burned $600 million in cash last quarter while Nokia Siemens increased its cash balance for the fourth quarter in a row.
If Nokia Siemens wasn't executing so well, it'd be just another cash drain on a company that needs all the cash it can get to turn its smartphone business around. Right now, Nokia can't afford distractions, and that's a huge distraction to avoid. If you're a Nokia investor, that's not a trivial point to be ignored.
Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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