Nokia outlook brings relief to wary investors

Helsinki: Nokia said it expected its struggling cell phone business to remain profitable in the third quarter, bringing some relief to investors after it lost its lead in the smart phone market to rival Apple.

Nokia, the world's largest phone maker by volume, reported a second-quarter underlying operating profit of €391 million (Dh2.04 billion), above all analysts' forecasts, which ranged from a loss of €35 million to profit of €285 million in a Reuters poll.

The results were boosted by royalty revenues of €430 million in the quarter, including payments from Apple following settlement of a legal dispute.

Analysts had expected the phone business to weaken further in the third quarter and to report an underlying operating result around breakeven, and many said the company's outlook to be "slightly above breakeven" was comforting.

"The guidance for the third quarter was a relief. It seems it will not be as bad as was feared," said Hannu Rauhala, analyst at Pohjola Bank.

Sales statistics

It shipped 88.5 million mobile devices in April through June, down from 111 million a year ago and 108.5 million in the previous quarter. Shares in Nokia were up 3.6 per cent at 1115 GMT, giving up some of its initial gains.

Nokia said it sold 16.7 million smart phones in the quarter, falling behind Apple's sales of 20.3 million iPhones lifting its net income to a stronger-than-expected $7.31 billion.

The Finnish company created the smart phone market in 1996 with its first Communicator model, but has failed in recent years to find an answer to the surge from Apple Inc's iPhone and Research In Motion's BlackBerry.

Nokia Chief Executive Stephen Elop has been pinning turnaround hopes on new smart phones using Microsoft software, but these will only come to market later this year.

Strategic transformation

"The challenges we are facing during our strategic transformation manifested in a greater than expected way" during the quarter, CEO Stephen Elop said.

"However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business."

Nokia said it was accelerating its cost-cutting plan to exceed the previously targeted savings of €1 billion in 2013. The reductions would be achieved through cuts in staff and oustourced professionals, facility costs "and various improvements in efficiencies," the company said.

While that could improve the company's finances, Nokia needs to take quick action to develop new products or it will continue to lose ground to its rivals, said Neil Mawston of London-based Strategy Analytics.

He said he expects Samsung of South Korea to also surpass Nokia in smartphones when it releases its second-quarter earnings next week.