Strong phone sales boost Nokia profits

Strong phone sales for Nokia during the first quarter helped boost its market share and contributed to solid growth in sales and profits, the company said Thursday.

Nokia reported a first quarter net profit of €1.05 billion ($1.27 billion, as of March 31, the last day of the period being reported), up 21 percent over €863 million in the first quarter of 2005. Net sales increased 29 percent to €9.5 billion, compared to €7.4 billion in the first quarter last year.

The world’s largest handset maker sold 75.1 million devices during the quarter, 10 percent less than in the fourth quarter, which is typically a strong period for sales, and up 40 percent from the first quarter 2005. The sales helped Nokia boost its market share by three percentage points, to 35 percent, compared to the same period last year, according to its own estimates.

Nokia has been saying it expects an increasing share of its business to come from new markets, and that appears to be coming true. Market share gains in China, Latin America and Asia-Pacific helped offset a decline in market share in Europe, Nokia said. It expects that 70 percent of growth across the industry this year will come from emerging markets.

Some of Nokia’s growth came from mature markets, however. Net sales in the U.S., where Nokia has struggled over the past couple of years, almost doubled year on year, said Jorma Ollila, chairman and chief executive for Nokia, speaking during a teleconference about the results.

One of the few disappointments in Nokia’s results came from its Enterprise Solutions group, the organization responsible for selling products to businesses. Net sales dropped 39 percent compared to the same quarter last year to €186 million and the group reported a €66 million operating loss. Nokia is banking on its enterprise-focused Eseries phones, which aren’t expected to reach good volume shipments until the third quarter, to turn around the group later this year, said Bill Seymour, head of investor relations for Nokia.

The company reiterated its good news from last month that the average selling price of its handsets reached €103 in the quarter, above its original expectation of €99. That gain was a result of lower sales in the entry-level phone segment and better sales in the higher-end segment, Nokia said. The N70 multimedia phone, the highest revenue generating device in the quarter, helped drive up the average, Nokia said.

Seymour said that going forward Nokia hopes that 3G (third-generation) and multimedia phones will continue to bolster the average selling price at the same time that expansion into emerging markets drives down the average price.

However, because the bulk of future growth is expected to come from new markets, Nokia warned that the average selling price of phones across the industry should decline this year.

It was the final earnings conference call for Ollila, who bid farewell to listeners. So popular in Finland that some of its citizens have called for him to run for the country’s presidency, Ollila has worked for Nokia since 1985 and will become non-executive chairman for the company, starting in June.

Rival Motorola Inc. is also capitalizing on the overall strong mobile phone market. On Tuesday, it reported that it sold more mobile phones during the quarter than ever before. China, India and Africa contributed to its strong sales, which helped lift its market share by 4.8 percentage points from a year earlier, to 21 percent.