Why Nokia Corporation Could Surprise in 2015

By Markets Fool.com

After jumping through the requisite regulatory hoops, Nokia finally closed the sale of its devices and services unit to Microsoft in April. Though many industry pundits were less than enamored with Microsoft taking on Nokia's hardware business, and the groans in Finland as they "lost" one of their iconic technology brands were heard around the globe, both are better off.

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The deal allowed Microsoft to dive into the deep end of the mobile pool, and Nokia shed a money-losing business and became a more efficient company with fewer, but more profitable, units. But that's where the two tech behemoths diverged: Microsoft has enjoyed a 25% jump in share price in 2014, while Nokia's stock has been mired in a slump, down about 3% year-to-date.

There's a lot to like
The advent of smartphones, and Nokia's slow transition, resulted in its devices and services unit consistently losing money, dragging down its overall financials. But even during this tumultuous time, there were several areas that continued to perform admirably, and there still are.

Nokia consists of three business units: Networks, far and away its largest revenue source, includes infrastructure hardware, software, and related services; its HERE maps services, regarded as one of the best in the industry; and, finally, Technologies, which consists of Nokia's suite of patents and the licensing opportunities those represent.

What may be surprising to some is that, despite competition from the likes of Sweden-based Ericsson , particularly in its key networking unit, Nokia is knocking revenues out of the ballpark. In Q3, Nokia's networking revenues jumped 13% compared to the year-ago period, to nearly $3.6 billion. Ericsson also grew its networking business, but by 9%, and actually lost sales in the important North America market -- in contrast to Nokia, which credited much of its improvement to strong growth in the region.

While Ericsson's gross margins improved slightly year-over-year to 35.2%, Nokia's new leaner operations resulted in gross margins of 44.5%, and operating profit improved by a whopping 60%. And here's where things get interesting heading into 2015: Much of the negativity surrounding networking providers like Nokia and Ericsson is due to a perceived slowing in the telecom industry, which would explain Ericsson's declining North American sales. But Nokia bucked the trend, citing "major new deployments in North America and Greater China" helping to drive its stellar quarter.

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Some icing on Nokia's cake
Nokia's second largest line of business is its HERE map sales and licensing. Yet again, last quarter demonstrated significant revenue growth from the unit, increasing 12% to $292.6 million. And based on some recent HERE wins, Nokia will continue to see map-related improvement. Last quarter, Nokia increased the number of HERE data licenses for cars by over 20%, to 3.2 million new vehicles.

With the growth of smart cars, HERE's potential upside in 2015 and beyond is almost limitless. But there are more opportunities than just autos, as a couple of recent announcements demonstrate. It's no secret that Android is the world's most popular mobile OS, and now Nokia's HERE maps are available around the globe from the Google Play store. But Google already has its own mapping service, so what's the big deal?

During HERE beta testing, over 1 million Android OS users downloaded Nokia's maps, mostly from Germany and the U.S. Now, with Nokia's mapping doors wide open, 2015 should see a significant pop in users, and word has it HERE for iOS will roll out "early" next year, too. As if aligning with Android and iOS weren't enough, Nokia recently reached an agreement with Chinese search king Baiduto provide its users with global mapping services.

Last, but not least, is the growing revenue Nokia is enjoying from its extensive patent portfolio. Up 9% year-over-year, Nokia's technologies division brought in $188.5 million last quarter alone. Much of the growth in patent licensing revenues was due to the deal with Microsoft. Holding onto the mobile patents while divesting itself of the manufacturing was a coup, and continued investment in the area will pay off in a big way.

For investors focused on 2015 and beyond, things looks awfully good. At a mere20 times future earnings, Nokia's share price is more than reasonable. Now factor in stellar performance across all its businesses, and every indication that the positive results will continue, and Nokia is poised to make 2015 a pleasant surprise for investors.

The article Why Nokia Corporation Could Surprise in 2015 originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google (A shares), and Google (C shares). The Motley Fool owns shares of Baidu, Google (A shares), Google (C shares), and Microsoft. 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.