Nokia Posts Net Loss as Handset Sales Decline

Company, Ceding Ground to Apple, Is Still Phasing Out Older Software in Favor of Microsoft Windows Platform

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Nokia, the Finnish mobile-phone maker that 's ceding market share to Apple, reported its first quarterly loss since 2009 after handset sales slumped following an accord to shift to Microsoft Corp. software.

The second-quarter net loss was 368 million euros ($521 million), missing the 1.44 million-euro average loss estimate by analysts. Royalty payments totaling 430 million euros at the handset unit helped lift the average selling price of each phone by 2% to 62 euros, Espoo-Finland based Nokia said today.

CEO Stephen Elop, who joined from Microsoft last September, is struggling to sell handsets based on Nokia's 10-year-old Symbian software that he is phasing out as the company prepares new models based on Microsoft's Windows Phones. Nokia shipped 88.5 million handsets in the quarter, 20% less than a year earlier and missing the 96 million-unit estimate by analysts.

"The results were saved by the royalties," said Michiel Plakman, a fund manager at Robeco Group in Rotterdam who helps manage 9 billion euros and who sold Nokia shares before the company's February agreement with Microsoft. "Other than that it's still very weak. I don't see stabilization, but I think there's some relief that results aren't weaker."

Nokia climbed as much as 7.8% after the earnings release and was up 3.3%, or 13.4 cents, at 4.21 euros as of 2:51 p.m. in Helsinki, giving the company a market value of 15.8 billion euros. Before today, the stock had fallen by about half this year.

As part of a settlement with Apple over patent litigation in June, Nokia has started receiving royalty payments from the Cupertino, Calif.-based company.

Nokia forecast the third-quarter margin at the handset division will be "slightly above break even." The second-quarter margin was 6.7%, helped by royalty income.

"The break-even margin expected for the third quarter satisfies consensus," said Mikko Ervasti, a Helsinki-based analyst at Evli Bank.

Nokia became the world's biggest handset maker in 1998 and fell behind in smartphones after Apple introduced the iPhone in 2007. Apple sold 20.3 million iPhones in the quarter ended June 25, helping the company to more than double profit to $7.31 billion in the period. By revenue, Apple already surpassed Nokia in the first quarter as the largest maker of mobile phones.

Nokia said today it will accelerate cost cuts, projecting a reduction of more than the 1 billion euros in operating expenses at the handset unit initially targeted by 2013.

While the second-quarter results "were clearly disappointing, we are executing well on the initiatives that are most important to our longer-term competitiveness," Mr. Elop said in a statement. "Some progress is already evident, and thus we are targeting to end this year with more net cash and liquid assets than at the end" of the second quarter.

The market for smartphones, which have computer-like capabilities for running software and accessing websites, may grow 55% to 472 million phones this year, according to market researcher IDC. It expanded 87% last year on surging demand for cheaper models powered by Google's Android software.

Nokia has revamped Symbian for touchscreens and released two handsets running an even newer version last quarter, including one combining a touchscreen and a Qwerty keyboard.

In June, Nokia unveiled the N9, a device running on its 6-year-old Linux-based smartphone platform. The handset, designed by Marko Ahtisaari, the son of a former Finnish president, was presented as a demonstration of new hardware and features that will appear in other devices.

Mr. Elop has said Nokia will continue selling Symbian devices and upgrading the software through 2016. He set a target in February of selling 150 million more Symbian handsets, without giving a deadline.

Rival Sony Ericsson Mobile Communications, which uses Android, reported its first loss in six quarters last week. CEO Bert Nordberg said the feature-phone market is "collapsing." Feature phones accounted for about half of Nokia's revenues and 78% of units shipped last year.

Android, which is used by dozens of handset vendors from Samsung Electronics Co. to small producers in China, passed Symbian as the most popular smartphone operating system in the first quarter, according to figures from Gartner.

Nokia Siemens Networks, Nokia's phone-equipment venture with Siemens, reported an operating loss of 111 million euros. The venture said last week it will remain under full ownership of its parents after buyout firms failed to come up with a compelling offer. While boosting sales, Nokia Siemens is struggling to compete with lower-priced offers from Chinese rivals such as Huawei Technologies Co. and ZTE Corp.

Nokia last reported a net loss for the third quarter of 2009 after writing down the value of Nokia Siemens.

-- Bloomberg News --

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