High cellphone margins lift Nokia Q2

By Tarmo Virki

HELSINKI (Reuters) - Strong cellphone demand in Asian emerging markets boosted Nokia Oyj's (NOK1V.HE) second-quarter sales and profits, sending its shares to their highest level in more than five years.

Nokia, the world's largest cellphone maker, said its underlying second-quarter earnings per share rose to 0.32 euros, compared with expectations of 0.25 euros in a Reuters poll, when adjusted for the performance of its networks venture with Siemens (SIEGn.DE).

Shares in Nokia were 8 percent higher at 22.25 euros by 1210 GMT, levels they last saw in early 2002, and pulled European indexes higher.

Operating profit margins at Nokia's handset units rose to 20.9 percent, their highest level since end-2003 and well above analysts' average forecast of 16.9 percent.

"Margin development was particularly strong on the mobile phones side. I think the investment story has now even improved if Nokia is to remain at such margin levels," said Marko Alaraatikka, Portfolio Manager at Evli Funds in Helsinki.

"Margins were so strong thanks to Nokia's economies of scale and superiority as well as due to Motorola's weakness," he said.

Nokia's closest rival for years, U.S.-based Motorola (MOT.N), has reported losses so far this year as it failed to win more business from Nokia in the lower end of the market, and lost market number two spot to Samsung Electronics.

Nokia's lead over Motorola increased to its widest ever in the April-June quarter.

APPROACHING 40 PCT MARKET SHARE

Nokia sold 100.8 million phones in the quarter, more than its three closest rivals combined, and estimated its market share at 38 percent, above analysts' consensus of 37.7 percent, and up from 34 percent a year ago.

The Finnish company has a strong lead in emerging markets such as China and India, which it has been fiercely defending.

"Emerging markets are the key issue; they are ahead in Africa, in China ... everywhere you look it's emerging markets, they have a wider distribution network there, they are reaching more consumers," said Neil Mawston from Strategy Analytics.

Strategy Analytics said Nokia should reach 40 percent market share during second half of the year.

When Nokia last approached 40 percent market share in 2003, operators complained that the Finnish firm's position was too dominant.

Average selling price for Nokia cellphones in the second quarter was 90 euros, compared with the average forecast of 90 euros in the poll and 89 euros in the first quarter.