Nokia reports strong profits from networks

HELSINKI: Finland's Nokia beat market expectations as it reported strong third quarter profit growth and lifted the profitability outlook for its core network gear unit on the back of large network roll-outs in North America and China.

Nokia shares rose 5.3% to €6.85 by 0830 GMT, underscoring investors' positive view of the transformation of the company from a struggling mobile handset-maker, the consumer-focused business it sold to Microsoft six months ago, into a pure play network-equipment maker.

Despite concerns over lower-margin deals in China, Nokia's network unit showed a core operating profit margin of 13.5%, up from 11% in the second quarter and topping analysts' average forecast of 9.9% in a Reuters poll.

"Networks benefited from some unique developments in the quarter, with a business mix weighted towards Mobile Broadband and regional mix that included strong gains in North America," chief executive Rajeev Suri said.

Nokia, which ranks third in the global network-equipment market after Ericsson and Huawei Technologies Co Ltd, said it now expects the network unit's full-year core operating margin to be slightly above 11%.

That compares with its previous forecast of at or slightly above the higher end of its long-term target range of 5% to 10%.

Nokia's stock is up 140% since Microsoft announced in September 2013 that it would acquire Nokia's once-dominant phone business, which had failed to recover from a late start in smartphones.

"Nokia's profitability is developing better than those of it's rivals ... That is due to the comprehensive savings programme that Suri has carried out in the past," said Mikael Rautanen, analyst at Inderes Equity Research, who had a buy-rating on the stock.

"But one should still remember that these type of (network) projects come in cycles, so the profitability improvement is not permanent."

Danske Capital fund manager Juha Varis, however, noted that Nokia has reported higher-than-forecast profitability through the year.

He added the network unit's long-term target range looked rather low and said the company should clarify its view of market dynamics.

"They have been clearly too cautious on their guidance ... Perhaps they could lift the long-term target range somewhat, the margin hasn't been around 5% for some time," Varis said.

Nokia's total underlying operating profit for the July-September period rose as much as 32% from the previous quarter to €457mil (US$578mil). Analysts had expected an operating profit of €359mil.

Nokia in April closed the Microsoft deal, leaving it with the network equipment unit, navigation technology business and a smartphone patent portfolio. – Reuters 

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