JPMorgan analysts Sandeep Deshpande, Chetan Udeshi, Rod Hall and Ashwin Kesireddy rate Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) as Overweight, as the company is set to announce inline 4Q13 results.

Nokia

We expect 4Q13 results to be mostly uneventful, with Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for the first time reporting results under a new structure. We highlight the salient points behind our IP case for investment again in this note and discuss the ’14 catalysts.

4Q13 preview

Excluding D&S segment, which will be reported as a discontinued item, we estimate Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s 4Q13 group sales at €3.288bn, group EBIT at €438.2m/13.3% and group EPS at €0.06. We estimate D&S segment loss (reported as income from discontinued items) of -€47m. Handset datapoints suggest that Windows phone momentum remained solid in 4Q13, thus we believe a worsening in D&S cash burn is unlikely.

NSN results likely to be in line; focus to be on IP business results

We expect NSN sales of €2.98bn (+15% QoQ, -25% YoY) and NSN EBIT margin of 12%, in line with company guidance due to normal seasonality in sales and ongoing cost cutting helping margin. We estimate Advanced Technologies (IP business) sales of €126m with EBIT of €98m/78% margin. IP business margin would be a focus of investors as this business unit is not yet clearly understood while Nokia has been indicating the current IP business sales run-rate is €500m annually. We estimate Here division sales of €222m with EBIT of €14m/6% margin.

Update on recent Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) patent lawsuits

Earlier this month, a Munich court ruled against Nokia Corporation  ADR (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) in a lawsuit vs. HTC involving a Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) patent for over-the-air updates. However, in the previous month, Nokia had preliminary wins against HTC in German courts involving two other Nokia patents. We note that Nokia has sued HTC Corp (TPE:2498) for infringement of 50 patents in multiple jurisdictions and has to date secured preliminary wins against HTC for six different patents. Further, recent information suggests that Nokia and Google Inc (NASDAQ:GOOG) could also be in discussions on Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) patents (including maps, navigation) that the Android OS could be infringing. If Android infringement is validated, it would have substantial implications for Nokia’s royalty as over 80% smartphones are based on Android OS.

Multiple imminent catalysts that could drive Nokia Corporation ADR (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) stock higher in 2014

These include the expected closing of the D&S sale in 1Q14, the subsequent announcement of the new CEO, the new strategy and the return of excess cash to shareholders. The new strategy would be a key investor focus, though an attractive cash return policy will also be appreciated by investors given the likely strong cash position post deal closure as well as cash generation in the future.