Nokia Reports Smaller Loss as Handset Sales Beat Estimates

Nokia Oyj (NOK1V) reported a smaller-than- estimated loss and forecast a profitable quarter for the handset business as the Finnish manufacturer prepares to introduce models based on Microsoft Corp.’s software. The shares surged.

The third-quarter net loss was 68 million euros ($94 million), Espoo, Finland-based Nokia said today. Analysts had projected a 229 million-euro loss. Shipments of lower-priced handsets jumped 8 percent to almost 90 million units, boosted by models with two SIM-card slots. Those sold 17.9 million units, helping overall volumes exceed estimates by 14 percent.

Chief Executive Officer Stephen Elop is set to introduce a smartphone line based on Microsoft’s Windows Phone software at the Nokia World event in London next week. In moving to the new platform, the company accelerated the decline of the 10-year-old Symbian device family, which has been losing market share to Apple Inc. and Google Inc.

“The good result in handsets is largely due to dual-SIM and channel replenishment in China,” said Alexander Peterc, a London-based analyst at Exane BNP Paribas. “It’s a medium- to low-quality beat because the channel replenishment is a one-off, but encouraging for Nokia because it’s no longer making losses and burning cash.”

Nokia jumped as much as 12 percent to 5.01 euros to the highest level in almost five months in Helsinki trading. It closed at 4.73 euros in Helsinki, giving the company a market value of 17.7 billion euros.

Smartphones Slump

Nokia said in February that the transition to Windows Phone as its main handset platform would start this year, with large volumes coming next year. Elop said today that the company will start shipping this quarter and expand to more countries and carriers in 2012.

Third-quarter revenue declined 13 percent to 8.98 billion euros. Nokia’s overall handset shipments slid 3 percent to 106.6 million units, while analysts had estimated sales of 93.6 million phones. Smartphones shipments still slumped 38 percent to 16.8 million units.

Apple sold 17.07 million iPhones in the third quarter. Last week, it set a record of selling more than 4 million iPhone 4S devices over the debut weekend.

Nokia’s handset business had an operating margin of 4.1 percent adjusted for some items. The margin will be in a range of 1 percent to 5 percent this quarter, the company said today.

Chinese Inventory

“We started to see signs of early improvement in many areas,” Elop, 47, said in the statement. The quarterly results “indicate that our sales execution and channel inventory situation have improved.”

Innovation and ability to cut operating costs should help the company toward a long-term target of 10 percent or more for the adjusted devices margin, Chief Financial Officer Timo Ihamuotila said on an analyst teleconference.

“As you see our first products launch, you’ll see the first signs of differentiation relative to Android and iPhone and also relative to other players within the Windows ecosystem,” Elop told the analysts. The first is more important in the short term, he added.

Further out, Nokia has a “clear engineering line of sight” on reducing Windows Phone prices to compete with low- priced smartphones from other manufacturers, Elop said, without specifying timetables. Microsoft’s Windows Phone chief Andy Lees said today that cooperation with parts makers including Qualcomm Inc. will halve prices for handsets on the platform to $200 next year.

Competition

The world’s largest handset maker since 1998 with market shares as high as 40 percent, Nokia had a 22.8 percent share in the second quarter, according to researcher Gartner Inc. It fell to third place in smartphone sales to carriers and resellers as Apple and Samsung Electronics Co. passed it for the first time in the quarter, Strategy Analytics said.

Elop has said Nokia will continue selling Symbian devices and upgrading the software through 2016. The former Microsoft executive set a target in February of selling 150 million additional Symbian handsets. The company is also investing to refresh its low-end handsets, which have declined as Asian manufacturers churn out smartphones running Google Inc.’s Android priced less than $100.

Last month, Nokia said it plans to close a factory in Romania that produces low-end handsets for Europe. It also started a review of its factories in Finland, Hungary and Mexico, and expanded job cuts to about 7,500 in total.

Nokia Siemens Networks, the phone-equipment venture with Siemens AG (SIE), posted a third-quarter operating loss of 114 million euros. The parents said Sept. 29 that they would inject 1 billion euros into the company.

The venture is “arguably in an even tougher position than Nokia,” said James Crawshaw, a London-based equity analyst at Standard & Poor’s. “Neither parent is particularly committed to the joint venture and nobody else is particularly interested either.

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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Photographer: Chris Ratcliffe/Bloomberg

Nokia Oyj Chief Executive Officer Stephen Elop is set to introduce a smartphone line based on Microsoft’s Windows Phone software at the Nokia World event in London next week.

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Photographer: Chris Ratcliffe/Bloomberg

Nokia Oyj Chief Executive Officer Stephen Elop is set to introduce a smartphone line based on Microsoft’s Windows Phone software at the Nokia World event in London next week. Close

Nokia Oyj Chief Executive Officer Stephen Elop is set to introduce a smartphone line based on Microsoft’s Windows... Read More

Photographer: Henrik Kettunen/Bloomberg

A Nokia N9 smartphone is seen on a demonstration stand inside a Nokia Oyj store in Helsinki. Close

A Nokia N9 smartphone is seen on a demonstration stand inside a Nokia Oyj store in Helsinki.

Photographer: Henrik Kettunen/Bloomberg

An employee, center, demonstrates the N9 smartphone to a customer in a Nokia Oyj store in Helsinki. Close

An employee, center, demonstrates the N9 smartphone to a customer in a Nokia Oyj store in Helsinki.

Photographer: Henrik Kettunen/Bloomberg

The headquarters of Nokia Oyj stand in Espoo, Finland. Close

The headquarters of Nokia Oyj stand in Espoo, Finland.

Photographer: Matthew Lloyd/Bloomberg

A technician polishes a Vertu Constellation Quest mobile handset during the final stages of assembly at Nokia Oyj's Vertu luxury phone division in Church Crookham, U.K. Close

A technician polishes a Vertu Constellation Quest mobile handset during the final stages of assembly at Nokia Oyj's... Read More

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