Nokia sales, profit top forecasts

World's No. 1 handset maker preserved handset margins

LONDON (MarketWatch) -- Nokia Corp., the world's largest maker of mobile phones, on Thursday delivered a forecast-beating 19% increase in fourth-quarter profit as it managed to preserve margins in its handset business.

Net income at the Finnish group improved to 1.27 billion euros ($1.65 billion), or 0.32 euros a share, from 1.07 billion euros, or 0.28 euros a share, a year earlier. Excluding one-time items, Nokia would have earned 0.30 euros a share.

Sales climbed 13% to 11.7 billion euros.

Consensus forecasts from analysts were for earnings of 0.28 euros a share on sales of 11.6 billion euros.

Nokia proposed an annual dividend of 0.43 euros a share compared to 0.37 euros a share in 2005.

shares rose 4.7% in Helsinki morning trading.

Margins preserved even as average selling prices slip

Nokia said it shipped 106 million handsets in the quarter, up 19% sequentially and 26% year on the year. Although the average selling price of its handsets slipped to 89 euros from 93 euros in the third quarter, the group's handset operating margin, a closely watched measure of profitability, rose to 17.8% from 17.1% a year ago.

The average selling price of phones has dropped consistently at Nokia and other players as a higher proportion of phones sold are basic models targeted to emerging markets such as India and China.

Nokia's closest rival, last week posted a 48% drop in quarterly profit as its mobile-phone margins and the average selling price of its handsets collapsed. See full story.

Nokia estimated its market share at 36% in the quarter, flat from the third quarter, but up from 34% a year ago. It said it expects to maintain its market share in the first quarter.

"Nokia was able to increase its share of the global-device market significantly in 2006 to an estimated 36%, clearly solidifying our No. 1 position in the industry," Chief Executive Olli-Pekka Kallasvuo said in a statement.

"We achieved this result through the strengths of Nokia's world-class brand, products, cost structure and efficiency, without sacrificing our operating margins or cash flow."

Regarding the industry as a whole, Nokia reiterated its forecast for device volume growth of up to 10% from an estimated 978 million units in 2006. It said it sees some decline in industry average selling price next year.

Goldman Sachs last week upgraded Nokia to buy, saying it believes a perfect storm of negative news, including Motorola's profit warning and the launch of Apple's iPhone, has coincided with the bottom of the Finnish company's profit cycle.

The broker said it expects new products to drive a recovery in sentiment as well as average selling prices and gross margins during the first half of 2007