Nokia Corporation (ADR) (NYSE:NOK) could disappoint in its Q1 earnings report, according to a recent report issued by the renowned research firm Morgan Stanley. Nokia Corporation (NYSE:NOK) will report its Q1, 2013 on Apr 18, 2013.

Nokia and Avanade

Nokia Corporation (NYSE:NOK)’s market capitalization unfolds that the company is worth more than the value shareholders are placing on it. However, it has been struggling to regain market share, especially through its Windows phones.

Nokia Corporation (NYSE:NOK) has surprised in Q4 four times in the past ten years with positive results (including Q4’12). The last three times it went on to issue disappointing figures in Q1 for the handset business. At €2.5 this may be at least partly in the price, but analysts at Morgan Stanley say that they would caution against high expectations for Q1 results.

Previous disappointments in Q1 have generally been a consequence of an inventory overhang, in analysts view. 1Q10 saw sales and margins at the low end of guidance following a strong, margin-led beat in Q4. 2005 and 2008 both showed some loss of market share q/q in Q1, after a strong market share performance in Q4. Analysts view this as likely a feature of “channel fill” in Q4, which can unwind in Q1. They would therefore be more cautious on 1Q13 results.

Nokia Corporation (NYSE:NOK)’s strong performance in Q4 was also characterized by strong sell-in of the previous generation of Windows 7 Lumia phones (610, 710, 800, 900), at low prices, which had been written down in previous quarters. This likely flattered volumes and margins in Q4. High sell-in of these devices in Q4 could yet lead to a worse than seasonal drop in revenue in Q1.

Morgan Stanley’s SOP-based valuation of €2.6 per share continues to factor in value for the Devices business based on the IP portfolio of €0.9 per share. Analysts at the firm think volumes and gross margins on the smartphone business are most likely to drive the shares short-term, and consensus expectations are for around 35m Lumia in 2013. They also think the market is increasingly pricing in some kind of value realization for NSN in 2013. Analysts currently estimate Windows Phone volumes of 6-7m in Q1 and ~40m for FY13. And they currently forecast Q1 gross margins of 20% for the smartphone business.