Nokia Q3 earnings preview: Cash levels, Windows Phone 8

Nokia announces its third quarter earnings on Thursday, and all eyes are on the Lumia smartphone business as the paddles keeping the phone maker in rhythm.

The Finnish mobile maker is still hanging in there thanks to its continued relationship with Microsoft on Lumia smartphones, but the firm is facing another rough ride in its upcoming earnings report from its last quarter earnings. 

For Nokia's third quarter earnings out early tomorrow morning, analysts are expecting Nokia to report a third quarter net loss of €396 million ($519), or €10 ($13) per share on a revenue of €6.96 billion ($9.12bn). 

There are two major points to look out for:

• Nokia's cash position and how much the firm is burning in its reserves as it tries to remain afloat;
• Microsoft's partnership on Windows Phone 8-powered Lumia smartphones.

Nokia has already laid off close 10,000 employees this year alone to cut back on the firm's operating expenditure as it attempts to claw back its cash balance. The restructuring efforts have already cost the company €450 million ($590m) in charges in the past quarter alone. Nokia estimates it can reduce its devices and services operating expenses down to €3 billion ($3.93) by the end of 2013.

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Nokia will continue to reserve its vast cash pile. Nokia's net cash position for the second quarter stands at €4.2 billion ($5.17bn) --- down from €4.8 billion ($5.9bn) in the first quarter. However, analysts suggest the firm could spend another €400--500 million ($525--650m) in net cash burn for the third quarter.

Evercore analysts Mark McKechnie and Preeti C. Doshi estimate that Nokia is facing a net cash balance of €2.2 billion ($2.8bn) the end of 2013 at this current rate, about half of what the firm is at now. 

But for now, the Microsoft--Nokia deal is keeping the Finnish phone maker in play -- at least until a point where Microsoft inevitably bails to go it alone.

As Nokia transitions to the new Windows Phone 8 platform later this year with a bevy of new handsets supporting the next-generation mobile software, much of the focus is if Nokia can recover from its quarter on quarter losses and pick up momentum in the run up to the lucrative Christmas sales period.

Wedbush analyst Scott Sutherland said in a note: 

We believe Lumia phones and the evolution of these phones and the Windows Phone OS will define Nokia’s success. We expect Nokia to make a major U.S. push with its Windows Phone 8 devices, and believe that this push will be a central force to Nokia's potential turnaround. Lumia phone unit sales have been doubling the past two quarters to 4 million in Q2. We expect further growth in Q3 and solid growth in Q4 with the launch of the Windows Phone 8 Lumia phones.

Nokia is expected to sell in the region of 71.9 million mobile devices, down 20 percent year-on-year, and 9.7 million smartphones, down more than 40 percent year-on-year. The figures represent a 1 million loss in Lumia sales on the previous quarter thanks to Nokia killing the upgrade path from existing Lumia devices and Windows Phone 8.

Similarly-beleaguered HTC is already taking a shine to Microsoft's eye with its range of Windows Phone 8 devices. No word from Microsoft on whether the software giant will develop a handset it can call its own, but it seems as though while it has invested interest in Nokia, it will leave its own handset 'plan B' in its back pocket for when it needs it.