Basic phones lift Nokia to surprise Q3 profit

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The world's largest cellphone maker Nokia reported a smaller than expected fall in third quarter profits as price cuts and new models lifted sales of its basic cellphones in key markets like India.

Shares in Nokia jumped on the surprise profit number, up 8.7 percent to 4.67 euros, their highest level since May.

Nokia, which is preparing to fight its way into the high end of the smartphone market with the launch of its first Windows phones next week, said it sold 89.8 million basic mobile phones compared to expectations for 67.0-89.7 million.

Protecting its position in emerging markets like India is crucial for Nokia as rivals like Apple push in with cheaper smartphones.

The struggling Finnish handset maker reported third quarter underlying earnings per share of 0.03 euros, compared with a forecast loss of 0.01 euros in a Reuters poll of analysts and a profit of 0.14 euros a year ago.

"The results were clearly better than expected. The mobile phones volumes shipped had the biggest role, also the smartphone volumes were on a higher level than expected," said Swedbank analyst Jari Honko.

"It seems that Nokia is further into a recovery, or rebound, than had been expected. Fourth quarter guidance signals that this trend will continue," Honko said.

2012 question

Nokia forecast fourth quarter underlying operating profit margin of 1-5 percent in its key phone business.

"I think that it's maybe a stronger finish to the year than some expected, but the real test will happen during 2012," said WestLB analyst Thomas Langer. "And this is the reason why we remain skeptics of the stock. I think investors are falling into a valuation trap."

Nokia, left in the dust by Apple and Google in the booming smartphone market, will introduce its first new model using Microsoft's Windows Phone platform next week in London.

It unveiled the Microsoft deal in February and has since struggled with a fast decline in smartphone sales as it has tried to sell models using its old Symbian platform.

Its smartphone sales dropped 38 percent from a year ago to 16.8 million phones, slightly ahead of analysts' average forecast of 15.9 million, but within a wide range of estimates.

Apple's iPhone sales dropped to 17.1 million in the September quarter, disappointing investors, but were still head of Nokia and the new iPhone 4S is breaking Apple's previous sales records.

With Microsoft software, Nokia hopes to gain the kind of attention Apple and Google have attracted from software developers that enrich their devices.

So far Windows Phone's success has been limited -- its market share is just 2-3 percent, compared with around 50 percent for Google's Android and around 15 percent share for Apple.

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