UPDATE 2-Basic Nokia phones more profitable than smartphones

Tue Jul 19, 2011 11:11am EDT

* Smartphones Q1 op profit margin 6.2 pct vs 10.4 pct 2010

* Basic phones 16.5 pct vs 19.4 pct

(Adds analyst's comment, details, background, share price)

By Tarmo Virki, European Technology Correspondent

HELSINKI, July 19 (Reuters) - Nokia's basic phones generate much better operating profits than its smartphone line-up, the Finnish mobile phone company said on Tuesday when unveiling regrouped past business results.

Margins for both businesses have been shrinking as the company has lost basic phones market share to Asian rivals, while Samsung Electronics , HTC and Apple have eaten its share of the smartphone market.

Smartphone operating profit margin, which the company called contribution margin in the statement, fell to 6.2 percent in the first quarter from 10.4 percent in the year-ago period. The margin on basic phones fell to 16.5 percent from 19.4.

When compared with rivals, the numbers still overestimate unit margins because some costs for the businesses are split into a separate "others" accounting line.

"These numbers show how behind Nokia smartphone margins are compared with its rivals," said IDC analyst Francisco Jeronimo.

For example, smartphone-focused HTC reported operating profit margin rising to 15.8 percent in the first quarter.

"Nokia has been tackling the decline of its smartphone market share by focusing on the mid-tier price points and price cuts, which has had a straight impact on margins and profits," Jeronimo said.

Nokia Chief Executive Stephen Elop is pinning turnaround hopes on new smartphones using Microsoft's Windows software, but these will only be available later this year.

Nokia's share price has halved since February -- when it unveiled the shift to Windows -- on worries it will lose a lot of market share before the new phones reach stores and that it may never regain this.

Shares in Nokia were 2.1 percent higher at 3.88 euros by 1449 GMT -- helped by WestLB upgrading the stock in the belief all negative news had now been priced into the shares -- and roughly in line with a rally in technology shares .

Nokia is expected to report a sharp fall in second-quarter results when it reports earnings on July 21 around 1000 GMT.

(Editing by David Hulmes)

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