A Town Hall Investment Research analyst, Jamie Townsend, has just upped his share rating of Nokia to Buy from Avoid. His report states that Nokia’s recovery has finally begun, thanks to the partnership with Microsoft and Windows Phone 7. He also stated that he is “both intrigued and concerned” with Nokia because of the rapid rate at which it went from a world-leader to a “has-been” in the smartphone world, and that this was because “Nokia seemed to be mired in a legacy born out of the handset markets that existed in the 1990s and early 2000s”.

 “While we believe that Q1 and Q2 2012 will continue to show the struggle between the death of Symbian and the rise of WP7, we also believe the pieces are now in place for a gradual reversal in the market share losses experienced in the last three years. Specifically, we are expecting positive unit surprises in the U.S. and Western Europe over the next two quarters, albeit coming off a very low base and expectations. While only a wild card right now, we also believe that some sort of partnership between Microsoft, Nokia and RIM is now a real possibility.”

Townsend also pointed out that he wasn’t looking for a rapid recovery in Nokia’s fortunes, but that “consistent signs of improvement in the smartphone segment in particular, will bring investors back to the shares”.#

The report also touched on the situation with RIM, in how the situation relates to Nokia. Townsend wrote,

“First, we believe that RIM is now where NOK was approximately a year ago. There was no longer any doubt as to the declining state of the smartphone business but also no clear path to recovery. As we know from Nokia’s last year, the recovery required bold action and the a long lead time to the actual point of product improvement. We believe investors should wait until the recovery is clear which in our view is not yet the case with RIM, but is now on the near horizon for NOK.”

“Second, RIM management on the quarterly conference call made it abundantly clear that the company is seeking a new partnership that will allow it to enhance its consumer appeal but allow it to focus its attention on its core historical strength with the enterprise,”

He added,

“We believe that this strategy carries a number of risks, but also believe that Nokia/Microsoft represents the most likely candidate for such a partnership. We have no data points to support that this will happen or that Nokia/Microsoft would want it to, but believe it to be a real possibility over the next six months. Should it occur we believe it would be perceived as a meaningful positive for NOK shares.”