Cheap phones lift Nokia's profits

HELSINKI (Reuters) - Robust demand for cheaper phones boosted third-quarter earnings at Nokia Oyj, the world’s biggest maker of cell phones, with the better than expected profits sending its shares higher.

A customer looks at Nokia's line of electronic products at their flagship store in Helsinki August 16, 2007. Photo taken August 16, 2007. Robust demand for cheaper phones boosted third-quarter earnings at Nokia Oyj, the world's biggest maker of cell phones, with the better than expected profits sending its shares higher. REUTERS/Bob Strong

Although phone prices fell, volumes were up and profit margins improved thanks to tight cost controls.

As a result the company said on Thursday its earnings per share for the three months rose to 0.40 euros from 0.21 euros in the same period of 2006. Analysts polled by Reuters had forecast earnings in a range of 0.27 euros to 0.38 euros per share.

Shares in Nokia closed 2.5 percent higher in Helsinki at 26.25 euros, valuing the firm at 103.3 billion euros ($147.3 billion). The DJ Stoxx European technology sector index was down 0.2 percent.

Nokia sold 112 million phones in the quarter, more than its three closest rivals combined, as consumers in emerging markets rushed to buy Nokia’s ultra-cheap models.

“The sub 30 euro segment grew very nicely,” Chief Executive Olli-Pekka Kallasvuo told Reuters. “We are quite strong in that segment.”

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

With about 8 million new clients signing up for mobile telephony each month in India alone, the world’s leading cell phone makers are falling over each other to woo first-time buyers with low-priced handsets.

“We are having a lot of growth in new subscribers in places like India and China, Indonesia, we are seeing Africa come on in a big way,” Nokia Chief Financial Officer Rick Simonson said in a conference call with analysts.

Nokia said its global market share rose to 39 percent.

“Nokia’s phone business is a well-oiled machine. It is clearly exploiting its leadership in supply chain, manufacturing, distribution and brand,” said Ben Wood, head of research at CCS.


Nokia’s shares have risen 70 percent so far this year, boosted by strong growth in the cell phone market and its increasing lead over rivals as Motorola failed to attack Nokia’s stronghold on the lower end of the market.

As Nokia sold mostly older models in the quarter, it was also able to scale back group sales and marketing spending by 231 million euros ($329 million) from the previous quarter.

However, it said new model launches in the holiday sales-fuelled fourth quarter would significantly increase marketing spend.

The average selling price (ASP) of phones in the third quarter fell to 82 euros, from 90 euros in the second quarter and below 89 euros forecast by analysts.

But at the same time the operating profit margin for the key cell phones division rose to 22.6 percent, well ahead of analysts’ average forecast of 20.4 percent.

The results come two days after Ericsson, the world’s biggest maker of mobile network equipment, reported a surprise drop in third-quarter results due to weaker demand in its networks upgrade business.

Ericsson’s stock fell 24 percent to 20.10 Swedish crowns on Tuesday, while Nokia’s shares were barely affected. On Thursday, Ericsson’s shares closed down 3.6 percent.

While the two Nordic firms have a similar history on the stock market, only 25 percent of Nokia’s sales come from network equipment. Ericsson’s handset business has been spun off into the Sony Ericsson joint venture.

Nokia’s network unit, now a Nokia Siemens Networks, joint venture, reported an operating loss of 120 million euros in the quarter, better than analysts expected. The new venture is restructuring and has announced it will cut 9,000 jobs.

Excluding restructuring and accounting charges, the unit was in the black in the quarter.

Nokia repeated it expects to see very slight growth in infrastructure market this year.

“This shows even more that Ericsson’s problems are company specific. If Nokia Siemens had given a bad outlook you could have said Ericsson’s problems were problems for the whole sector,” said Cheuvreux analyst David Hallden.

Additional reporting by Terhi Kinnunen in Helsinki and Helena Soderpalm in Stockholm