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Nokia, Microsoft May Enjoy Smartphone Upside


01/05 01:55 PM

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--Brokerage upgrades rating on shares of Nokia (NOK:$5.48,00$0.40,007.87%) to outperform

--In firm's survey, 85% of 'key executives' at wireless carriers said there was a need for a 'third ecosystem' in the smartphone market, with a majority of them predicting Windows Phone will take that spot

--Shares of Nokia (NOK:$5.48,00$0.40,007.87%) jump; Microsoft (MSFT:$27.685,0$0.285,01.04%) shares edge up slightly

By Dan Gallagher

Nokia Corp. (NOK:$5.48,00$0.40,007.87%) and Microsoft Corp. (MSFT:$27.685,0$0.285,01.04%) may be able to ride each other's coattails into a strong spot in the smartphone market this year, Credit Suisse analysts said Thursday.

In a pair of reports, the broker cited research among wireless carriers that are hoping Microsoft's (MSFT:$27.685,0$0.285,01.04%) Windows Phone mobile operating system will become a " third ecosystem" in a market largely dominated by Apple Inc.'s (AAPL:$418.05,00$4.61,001.12%) iPhone as well as the Android platform from Google Inc. (GOOG:$659.40,00$-8.88,00-1.33%) .

The brokerage also upgraded its investment rating on the shares of Nokia (NOK:$5.48,00$0.40,007.87%) to outperform, citing its launch of handsets for the Windows Phone platform that began with the introduction of the Lumia device late last year.

"We fundamentally believe that Nokia's (NOK:$5.48,00$0.40,007.87%) focus on Windows will allow the company to drive a recovery through 2012 in both its top-line and earnings," lead wireless analyst Kulbinder Garcha wrote in a note to clients.

Nokia's (NOK:$5.48,00$0.40,007.87%) U.S.-listed shares were trading up 8.5% to $5.51 in recent trading Thursday afternoon. Microsoft (MSFT:$27.685,0$0.285,01.04%) shares were up 1.1% to $27.69.

In its report, Credit Suisse cited its own proprietary survey of "key executives" at wireless carriers, 85% of which said there was a need for a " third ecosystem" in the smartphone market, with a majority of them predicting Windows Phone will take that spot.

"Our survey also showed that both subsidy and volume share is expected to be markedly higher for Windows Phone over the next 12 months," the firm wrote.

For Nokia (NOK:$5.48,00$0.40,007.87%) , this could mean a revival of its smartphone business, which has fallen out of favor as the company failed to keep pace with the new devices and operating systems hitting the market over the last few years. In early 2011, newly recruited CEO Stephen Elop announced plans for the company to throw its support behind Microsoft (MSFT:$27.685,0$0.285,01.04%) and build handsets for Windows Phone.

The Lumia debuted to some limited markets late in the year, and is expected to expand further this year, including a launch in North America.

Garcha wrote "we believe that the quality of Windows platform is quite good, which, combined with Nokia's (NOK:$5.48,00$0.40,007.87%) brand, distribution, scale and IPR should enable it to capture smartphone share making it the third ecosystem behind Android and Apple (AAPL:$418.05,00$4.61,001.12%) ."

He predicted a "crossover" for Nokia (NOK:$5.48,00$0.40,007.87%) would take place in the third quarter of this year, when it expects the company's Windows Phone devices to begin outselling those using the company's older Symbian platform.

Philip Winslow, who covers Microsoft (MSFT:$27.685,0$0.285,01.04%) for the broker, wrote in another note that the software giant is unlikely to see a big impact to its financial results from Windows Phone, but that gaining traction in smartphones "will serve as a boost to investor sentiment" that has faded because of the company's lack of presence in the mobile market.

-By Dan Gallagher; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
01-05-121355ET
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