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Nokia Shares Soars as Mobile-Phone Profit Beats Estimates

January 10, 2013

Nokia Says Earnings at Mobile-Phone Business Beat Its Estimates

Nokia Lumia smartphones sit on display inside a Mobile TeleSystems store in Moscow. Photographer: Alexander Zemlianichenko Jr./Bloomberg

Nokia Oyj (NOK1V) jumped as much as 18 percent in Helsinki trading after a surprise fourth-quarter earnings recovery signaled Chief Executive Officer Stephen Elop’s plan to revive the Finnish handset maker is gaining pace.

The company said today its mobile-phone business probably had its first profit in a year excluding some items. That compares with its October forecast for a loss of as much as 10 percent of sales. The shares reached their highest level in nine months for their steepest increase since July 19.

The return to profit in phonemaking is among the first concrete signs that new devices and asset sales are helping Espoo, Finland-based Nokia rebound. Nokia has accumulated about 4.8 billion euros ($6.3 billion) in net losses since Elop started his bet in early 2011 on smartphones using Microsoft Corp. (MSFT:US)’s Windows software.

“This clearly shows Nokia is making good progress with consumers,” said Robert Jakobsen, a Jyske Bank A/S (JYSK) analyst in Silkeborg, Denmark, who recommends buying the stock.

Nokia rose as much as 18 percent to 3.54 euros and traded 11 percent higher at 3.34 euros as of 6:10 p.m. in Helsinki. The stock tumbled 22 percent last year for its fifth consecutive annual decline.

Nokia Siemens

Nokia sold 4.4 million Lumia smartphones in the fourth quarter, rising from the third quarter’s 2.9 million. Total fourth-quarter handset sales reached 86.3 million units, including 9.3 million of the lower-priced touchscreen Asha smartphones.

Nokia Siemens Networks, the company’s equipment joint venture with Siemens AG (SIE) of Germany, had an operating profit of 13 percent to 15 percent of sales excluding some items, also beating Nokia’s forecast.

“This is clearly very positive news from Nokia as it both shows that the company’s new Lumia product launches are performing well and that the NSN networks business has gained good momentum,” said Louis Landeman, an analyst at Danske Bank A/S (DANSKE) in Stockholm. “The company’s restructuring programs are reducing costs faster than expected.”

Siemens slipped 0.1 percent in Frankfurt. Ericsson AB, the largest supplier of wireless networks, added as much as 3.7 percent in Stockholm, while Alcatel-Lucent SA soared as much as 4 percent on the Paris exchange.

The cost of insuring Nokia bonds using credit-default swaps fell 54 basis points to 610 basis points at 4:03 p.m. in London. That insurance cost has fallen by half since reaching a record high in July, according to data compiled by Bloomberg.

Job Cuts

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To cut expenses, Elop has eliminated more than 20,000 jobs and closed production and research sites. He has also introduced devices such as the Lumia 920 to stop customer defections to Apple Inc. (AAPL:US)’s iPhone and devices running Google Inc. (GOOG:US)’s Android software.

Operating profit at the handset division, excluding some items, was at a break-even level or as much as 2 percent of sales last quarter. In the current quarter, the handset unit will probably have an operating loss equivalent to 2 percent of sales, Nokia said. That prediction has an error margin of plus or minus 4 percentage points, the company said.

The network venture will probably have a first-quarter operating margin of 3 percent, plus or minus 4 percentage points, Nokia said.

Nokia had supply constraints with the Lumia 920 in the fourth quarter, especially with AT&T Inc. in the U.S., and operators in Italy and Germany, Elop said on a conference call, adding that the bottleneck will persist during the first quarter.

“Those are very much top of my conversations with the operators in those markets,” Elop said. “The success of the 920 has been primarily capped by the supply situation.”

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

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


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