Nokia Device Business Posts Strong Q2, NSN Stumbles

Nokia and Nokia Siemens Networks said Thursday its second quarter net income more than doubled, on the strength of a 29 percent jump in handset shipments, beating its forecast.

However, after this first reporting quarter for the newly combined network company, NSN does not expect to achieve the double-digit profitability it was hoping for.

Taken together, Nokia and NSNs net sales were up 28 percent, but below analysts’ estimates. Nokia CEO Olli-Pekka Kallasvuo said the companys market share increased to 38 percent, and the worlds largest cell phone maker posted a net income of $3.87 billion, up from $1.56 billion a year earlier.

NSN’s operating margin for the quarter was negative 10.5 percent. NSN does expect to improve its profitability throughout 2007, it said.

It is now clear that NSN was optimistic about customers’ reaction and has found them more hesitant about committing large orders than it had hoped, said Martin Garner, director of wireless intelligence at Ovum Ltd. NSN said its sales were hit by unusually aggressive pricing in Q2 – something Ericsson did not appear to suffer from during the quarter. Its sales were also hit by the management work involved in integrating the two companies. Furthermore, its profits were hit by the mix of lower margin regions and products as well as additional costs from the merger. Nokia has decided that it needs to deal with this by bringing forward its rationalization program by two years and taking out a further 0.5 billion of annual costs.

For its part, Nokia shipped 100.8 million cell phones, and benefited from Motorolas weakening share of that market. Analyst Jeff Kagan said that meanwhile, the device business will continue to be a segment to watch.

We think that Apples success with the new iPhone will have Nokia and other manufacturers working on devices in that can compete in this new sector of the wireless business, he said in a research note. Nokia seems to be strong at this point. However, we should expect a quiet third quarter. The fourth quarter should be wild, because it looks like assorted manufacturers will be rushing their iPhone-like devices to market during that busiest quarter of the year.

Motorola has softened for now, so Nokia looks to continue its marketplace strength as long as they continue to have cutting edge products coming out, he added.

Nokia Siemens Networks

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