Nokia’s Challenge: Can It Wait for Windows 8?

Investors are betting that Finland's Nokia (NYSE: NOK) can survive the smartphone wars, now that it's gambled on Windows from Microsoft (Nasdaq: MSFT), the world's biggest software company, as its technology partner.

That's the one reason why American Depositary Receipts for the loss-ridden company surged as much as 13 percent in Thursday trading after it reported a second-quarter loss of €826 million (US $1 billion), 70 percent greater than the prior year.

In midday trading, Nokia shares were at $1.85, up 12 cents, or 7 percent.

The brightest note in the announcement was that Nokia shipped 4 million Lumia smartphones that use Microsoft Windows 7 in the quarter, about twice as many as expected.

Sold in the U.S. through AT&T Inc. (NYSE: T), the No. 1 telecommunications carrier, the Lumia 900 units have gotten good reviews. CEO Stephen Elop, a former Microsoft executive, said Microsoft's introduction of Windows 8 will be an important catalyst for the model.

Not long ago, Nokia was the leader in mobile and smartphones, which ran on the European-based Symbian OS, which Elop scrapped in favor of Windows.

So far, the move hasn't done much for Nokia's market share, which IDC estimated fell to only 8.2 percent in the first quarter from 23.8 percent a year ago. Samsung Electronics (Seoul: 005930) nearly tripled its share to 29.1 percent, followed by Apple (Nasdaq: AAPL), of Cupertino, Calif., with 24.2 percent.

Microsoft is desperate for Nokia to crack the U.S. market, said Jefferies analyst Lee Simpson. As well, he worries that Microsoft, which now owns Skype, may undermine Nokia's attempts to gain back share.

On Monday, Microsoft CEO Steve Ballmer said the next version of Microsoft Office will include links to Skype, as well as operate with future Windows phones.

Under Elop, 48, Nokia is firing 10,000 of its 122,000 employees, shuttering research centers in Germany and Canada and at least one factory in Finland. The company reported its cash and investments dipped only 14 percent to €4.2 billion.

We did a very good job on cash management, Elop said.

If Nokia can keep selling Lumia phones, including new models timed for the release of Windows 8, it could recover profitability and market share.

Nokia's annual developers convention, Nokia World, will convene in Helsinki on Sept. 5. Microsoft hasn't yet announced a shipment date for Windows 8. Elop and Microsoft's Ballmer appeared together at the International Consumer Electronics Show in January and pledged to collaborate closely.

At the same time, with a value of only $7 billion, nearly 70 percent below its year-earlier value, Nokia might attract a bidder, which could include Microsoft, Samsung or a private equity company seeking to benefit from a turnaround.

Meanwhile, Nokia also reported its joint venture with Germany's Siemens AG (NYSE: SI) had an unexpected profit after extensive restructuring, including acquiring some lines from Motorola Solutions Inc. (Nasdaq: MSI).

The unit reported an adjusted profit from operations of €27 million after reporting a loss of €147 million in the first quarter.

Shares of Nokia rival Apple rose $5.13 to $611.39, while Microsoft shares gained 21 cents to $30.66.