July 19 (Bloomberg) -- Nokia Oyj jumped the most in 4 1/2 years after sales of its flagship smartphone exceeded analysts’ estimates, signaling the former global handset leader is making progress with a plan to stem revenue and market-share declines.
Sales of the Lumia phone increased to 4 million units in the second quarter from more than 2 million in the previous period, Nokia said today. The Espoo, Finland-based company, which lost its 14-year run as the phone-industry leader this year, still projected continuing losses at its handset business.
Rising Lumia sales are a bright spot for a company struggling to return to profitability as it reported a fifth consecutive quarter of plunging revenue. Chief Executive Officer Stephen Elop is betting on the Lumia running Microsoft Corp. software to halt gains by Apple Inc.’s iPhone and handsets using Google Inc.’s Android software, including Samsung Electronics Co.’s Galaxy series.
“It’s good to see Nokia is still hanging in there,” Riikka Tuominen, a credit analyst at Nordea Bank AB in Helsinki, said in an interview. Still, “it’s hard to write off the uncertainty.”
Nokia rose 12 percent to close at 1.54 euros in Helsinki, the biggest jump since January 2008. The stock had slid 64 percent this year through yesterday to the lowest level since 1994. Nokia has lost about 95 billion euros ($116 billion) in value since Apple introduced the iPhone in 2007 and now has a market capitalization of 5.7 billion euros.
Elop, a former Microsoft executive who took over in 2010, has announced more than 20,000 job cuts and shuttered production and research sites as part of his turnaround plan. He abandoned Nokia’s home-grown operating system to bet on Redmond, Washington-based Microsoft’s Windows Phone software.
“The market is reacting positively because of the Lumia numbers,” said Sami Sarkamies, a Nordea analyst in Helsinki. Analysts on average projected that Nokia would ship 3.8 million Lumia phones, Sarkamies said.
Elop is counting on the Lumia to differentiate Nokia from smartphone market leaders Apple and Android. Last week, the price of the Lumia 900 was cut in half at AT&T Inc. to $49.99 with a two-year contract in a sign the device is struggling to pull customers away from iPhone and Android models.
The current Lumia versions risk becoming less attractive because they can’t be upgraded to run the Windows Phone 8 software due out later this year. Elop said today new Lumia activations have been “stable to up” since Microsoft announced the new software last month. He said Nokia will keep selling current versions even after the new software is rolled out.
“Because they will continue to get upgrades and new capabilities, we expect to be selling a number of those for a substantial period of time, including well after Windows 8 ships,” Elop told reporters on a conference call.
Elop also said Nokia is working with Microsoft on hardware that uses Windows Phone 8, declining to say when the company is planning to introduce its first product running the software. The company has scheduled this year’s Nokia World event for September, and it has used the occasion in the past to showcase new products.
Nokia, whose long-term debt has a junk status by the three largest rating services, said the adjusted operating loss at its devices business was equivalent to 9.1 percent of revenue. The margin for the current quarter will be within a range of 4 percentage points more or less than that level, Nokia said.
The second-quarter net loss widened to 1.41 billion euros from 368 million euros. Analysts predicted a loss of 641.1 million euros, according to the average of estimates compiled by Bloomberg. Revenue tumbled 19 percent to 7.54 billion euros, compared with the 7.32 billion-euro estimate.
Nokia reported net cash of 4.2 billion euros. Analysts projected about 3.7 billion euros on average, Sarkamies said.
Nokia Siemens Networks, the network-gear venture Nokia owns with Siemens AG, returned to profit when excluding some items. Adjusted operating profit at the business was 27 million euros after a loss of 147 million euros in the first quarter.
The cost of insuring Nokia bonds using credit-default swaps headed for the first decline in five days, falling as much as 28 basis points, or 2.2 percent, to 1,212 basis points, according to Bloomberg prices. The insurance cost reached a record high of 1,240 basis points yesterday after having risen 249 percent this year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Total smartphone sales fell 39 percent to 10.2 million units and more basic handsets rose by 2.4 percent to 73.5 million units. Shipments continued to slump in Europe and China while sales in North America were little changed from the first quarter.
Nokia lost its position as the biggest maker of mobile phones to Samsung this year, after the Suwon, South Korea-based company sold 93.5 million units in the first quarter, according to Strategy Analytics.
Nokia needs to improve its devices’ features and consider lower prices to become more competitive, said Mats Granryd, CEO of Tele2 AB, Sweden’s second-largest mobile carrier.
“We didn’t have a Nokia phone in our top 10 list this quarter and we only had one model last quarter,” Granryd said in a phone interview from Stockholm today. “Now, it is about 75 percent Samsung and iPhones that make the list. We would be happy to see Nokia back in our top 10, but they have to work on the user interface and pricing first.”
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