Nokia Corporation (NYSE:NOK): BoAML points to structural defects

Bank of America Merrill Lynch, which came out today a report on Nokia Corporation (ADR)(NYSE:NOK) and the popularity of its new Lumia smartphone, said that the structural challenges facing the company were daunting.

The Lumia 920 which has been launched in several markets has met with good response and in markets like Germany and Australia; there are reports of it being sold out.

Is Lumia A Real Turnaround Formula For NOK and Investors Should The Stock Now? Find Out Here

Analysts estimate that Nokia will ship about 5.4 million units of the new Windows-based smartphones in the fourth quarter of 2012, which could go up to 33.2 million in 2013.

This means the Finnish handset maker, which once ruled the mobile world, will get about 6 percent of the market share of Windows Phones. The company will be facing competition in this segment from Samsung, HTC, ZTE and Huawei all of whom are partnering Microsoft.

BoAML said that the reduced scale of operations of Nokia, lack of ecosystem and vertical integration and the fact that it does not have much of any differentiating characteristics might be deterrents in its gaining more popularity.

Google Trends data suggest that the Lumia series of smartphones is gaining traction in markets such as India, Russia wile in the United States, Western Europe and China, it is not that high.

BoAML said that it expects Nokia to continue to burn cash and the net cash position to decrease to €2.7bn at end of Q4 (down from €3.6bn at end of Q3). BAML projects that Nokia’s phone division will be unprofitable next year (-2.7 percent operating margin), below consensus expectations of break-even (+0.3 percent operating margin), as that this will be enough to offset the structural decline in feature phone revenues. BAML reiterates it’s underperform rating and sum of parts-derived €1.60 price target.

Shares of NOK have jumped over 32% so far this week.