Nokia Oyj, the biggest cellular-phone maker, posted second-quarter profit at the top end of its reduced forecast and said Thursday earnings will rebound in the fourth quarter. The shares rose 14 percent.
Net income dropped to 830 million euros (US$728 million), or 17 cents a share, from 984 million euros, in the year-earlier period. That was the first profit drop in five years. Earnings will rise in the fourth quarter from the third, which will fall to between 14 and 16 cents a share, Nokia said.
"The fact that the company is confident enough to give relatively stable guidance going forward" is a relief, said Adrian Brass, who helps manage US$100 million, including Nokia, for the World Wireless Fund at Investec Asset Management.
Global phone sales stagnated this year, forcing Chief Executive Jorma Ollila to cut Nokia's estimates three times. The Finnish company has 35 percent of the mobile-phone market and is reducing some costs faster than rivals by pressing suppliers as demand cools with an economic slowdown, analysts said.
The stock rose 2.8 euros to 23. It had slipped 41 percent since June 11, the day before Nokia lowered second-quarter forecasts.
Sales this quarter will be flat or rise 5 percent, Nokia executives said on a conference call. It earned 19 cents a share in the third quarter of last year. Nokia didn't give a specific forecast for fourth-quarter EPS or sales because of "current economic and industrial uncertainties." European phone operators, such as British Telecommunications Plc, have been holding back spending on equipment after paying a combined US$100 billion for new licenses last year. They are also reducing handset subsidies.
"We're neutral over the next three months because the entire telecom equipment industry will remain under pressure," said Amir Bouyahi, telecommunications analyst at Cordius Asset Management, which oversees about 14 billion euros in assets. "The shares were heavily sold off before the report. At a price near 20 euros, Nokia is definitely undervalued."
Although Nokia said overall global sales of phones were unchanged in the second quarter from a year earlier, sales in its mobile phone unit rose 10 percent to 5.3 billion euros. The company expects to win more market share, even as global sales show "very little or modest" growth from 405 million last year. Handset sales account for 70 percent of Nokia's total.
"This brings good feelings to investors," said Jari Wallasvaara, an analyst at Handelsbanken in Helsinki. "The margins at the mobile phone unit show Nokia's cost efficiency," he added. "It's the only company which can make money," compared to its competitors.
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