Nokia Posts Bigger-Than-Expected Loss

Nokia Oyj (NOK1V), the Finnish mobile-phone maker that’s ceding market share to Apple Inc., reported its first quarterly loss since 2009 after handset sales slumped following an accord to shift to Microsoft Corp. software.

The second-quarter net loss was 368 million euros ($529 million), missing the 1.44 million-euro average loss estimate by analysts. Royalty payments totaling 430 million euros at the handset unit helped lift the average selling price of each phone by 2 percent to 62 euros, Espoo-Finland based Nokia said today.

Chief Executive Officer Stephen Elop, who joined from Microsoft last September, is struggling to sell handsets based on Nokia’s 10-year-old Symbian software that he is phasing out as the company prepares new models based on Microsoft’s Windows Phones. Handset shipments fell 20 percent to 88.5 million units, missing analysts’ estimate by 7.5 million phones.

“The results were saved by the royalties,” said Michiel Plakman, a fund manager at Robeco Group in Rotterdam who helps manage 9 billion euros and who sold Nokia shares before the company’s February agreement with Microsoft. “Other than that it’s still very weak. I don’t see stabilization but I think there’s some relief that results aren’t weaker.”

Photographer: Simon Dawson/Bloomberg

An employee uses a Nokia Oyj C7 handset. Nokia sold 88.5 million handsets in the quarter, 20 percent less than a year earlier and missing the 96 million-unit estimate by analysts. Close

An employee uses a Nokia Oyj C7 handset. Nokia sold 88.5 million handsets in the... Read More

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Photographer: Simon Dawson/Bloomberg

An employee uses a Nokia Oyj C7 handset. Nokia sold 88.5 million handsets in the quarter, 20 percent less than a year earlier and missing the 96 million-unit estimate by analysts.

Shares Climb

Nokia climbed 10.2 cents, or 2.5 percent, to 4.18 euros at the close of trading in Helsinki. That pares the stock’s decline this year to 46 percent, giving the company a market value of 15.7 billion euros.

As part of a June settlement with Apple Inc. (AAPL) over patent litigation, Nokia has started receiving royalty payments from the Cupertino, California-based company.

Nokia forecast the third-quarter margin at the handset division will be “slightly above breakeven.” The second- quarter figure was 6.7 percent, helped by royalty income.

“The breakeven margin expected for the third quarter satisfies consensus,” said Mikko Ervasti, a Helsinki-based analyst at Evli Bank who recommends buying Nokia shares.

Net cash and other liquid assets declined by 2.5 billion euros to 3.9 billion euros in the quarter, after Nokia made payments for its dividend and for assets from Motorola Solutions Inc. Nokia aims to increase the figure again by the end of 2011.

“We specifically wanted to signal our sense of confidence around the cash position,” Elop said on a conference call. The company has identified additional ways to cut costs and raised its target for expense reduction by 2013 above the 1 billion euros announced previously, he said.

Once Largest

Nokia became the world’s biggest handset maker in 1998 and fell behind in smartphones after Apple introduced the iPhone in 2007. Apple sold 20.3 million iPhones in the quarter ended June 25, helping the company to more than double profit to $7.31 billion in the period. By revenue, Apple already surpassed Nokia in the first quarter as the largest maker of mobile phones.

The market for smartphones, which have computer-like capabilities for running software and accessing websites, may grow 55 percent to 472 million phones this year, according to market researcher IDC. It expanded 87 percent last year on surging demand for cheaper models powered by Google Inc. (GOOG)’s Android software.

Nokia has revamped Symbian for touchscreens and released two handsets running an even newer version last quarter, including one combining a touchscreen and a Qwerty keyboard.

150 Million Target

In June, Nokia unveiled the N9, a device running on its six-year-old Linux-based smartphone platform. The handset, designed by Marko Ahtisaari, the son of a former Finnish president, was presented as a demonstration of new hardware and features that will appear in other devices.

Elop has said Nokia will continue selling Symbian devices and upgrading the software through 2016. He set a target in February of selling 150 million more Symbian handsets, without giving a deadline.

Rival Sony Ericsson Mobile Communications AB, which uses Android, reported its first loss in six quarters last week. Chief Executive Officer Bert Nordberg said the feature-phone market is “collapsing.” Feature phones accounted for about half of Nokia’s device and services revenues and 81 percent of unit shipments last quarter.

Android, which is used by dozens of handset vendors from Samsung Electronics Co. to small producers in China, passed Symbian as the most popular smartphone operating system in the first quarter, according to figures from Gartner Inc.

Nokia Siemens Networks, Nokia’s phone-equipment venture with Siemens AG, reported an operating loss of 111 million euros, even though it added 220 million euros in revenues from the Motorola assets, said Nokia Chief Financial Officer Timo Ihamuotila.

The venture said last week it will remain under full ownership of its parents after buyout firms failed to come up with a compelling offer. Nokia Siemens is struggling to compete with lower-priced offers from Chinese rivals such as Huawei Technologies Co. and ZTE Corp.

Nokia last reported a net loss for the third quarter of 2009 after writing down the value of Nokia Siemens.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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