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Nokia Rises on Morgan Stanley, Merrill Optimism on New Devices

Nokia Oyj, the world’s biggest maker of mobile phones, rose in Helsinki trading after Morgan Stanley and Merrill Lynch said they see demand and better prices for the company’s new N8 smartphone, its answer to Apple Inc.’s iPhone.

“Our checks suggest strong order intake from operators at a lower discount than feared,” Morgan Stanley analysts including Patrick Standaert wrote in a report. The bank upgraded Nokia from “underweight” to “overweight” and raised its target share price to 9 euros from 6.50 euros.

Strong orders and a higher average selling price make it unlikely that Nokia will miss the consensus earnings estimates for 2010, Bank of America Merrill Lynch analyst Andrew Griffin wrote in a report today. Espoo, Finland-based Nokia has struggled to come up with a hit smartphone in the most expensive category, denting its margins.

Nokia rose as much as 3.8 percent to 7.46 euros in Helsinki. It was trading at 7.41 euros as of 11:02 a.m. in the Finnish capital. Before today, the shares had lost more than 65 percent of their value since Apple introduced the iPhone in June 2007, kick-starting the market for touch-screen smartphones.

Nokia is likely to showcase the N8 and introduce other smartphones next week at its annual industry event in London, called Nokia World. The N8 is the first of a new line using Symbian 3, a revamped version of Nokia’s main smartphone operating system.

Nokia has lowered its margin outlook two quarters in a row as iPhones, Research In Motion Ltd.’s BlackBerrys and devices based on Google Inc.’s Android eroded its high-end smartphones market share.

Margins, Market Share

It said in July that the operating margin in devices could fall as low as 7 percent in the third quarter as it prepared to release the N8, rebounding to 10 to 11 percent for the year after new products are introduced. The margin was 12.5 percent last year and 18.2 percent in 2008. In July, Nokia posted a 40 percent drop in second-quarter profit.

The N8 is expected to sell better in the fourth quarter than Nokia’s other touch-screens have in earlier quarters, Merrill Lynch’s Griffin wrote.

The N8 may initially ship at least 10,000 units a week in the U.K. alone, and contribute 1 billion euros in operating profit in 2011, the Morgan Stanley report said.

“The N8 is off to a good start,” it said. “This could imply that earnings have now troughed.”

Nokia’s average smartphone selling price fell to 143 euros in the second quarter from 181 euros a year earlier as it lost high-end market share to Apple and Android devices.

It expanded in lower-priced models to keep its place as the No. 1 smartphone maker. Nokia had 34.2 percent of the overall mobile-phone market, compared with 36.8 percent a year earlier, according to researcher Gartner Inc. Its smartphone share fell to 37.4 percent from 45 percent in the second quarter of 2009.

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