Strong cellphone demand in Asian emerging markets boosted Nokia Oyj's second-quarter sales and profits, sending its shares to their highest level in more than five years.

Nokia, the world's largest cellphone maker, said its underlying second-quarter earnings per share rose to 0.32 euros, compared with expectations of 0.25 euros in a Reuters poll, when adjusted for the performance of its networks venture with Siemens (SIEGn.DE: Quote, Profile, Research).

Shares in Nokia were 8 percent higher at 22.25 euros by 1210 GMT, levels they last saw in early 2002, and pulled European indexes higher.

Operating profit margins at Nokia's handset units rose to 20.9 percent, their highest level since end-2003 and well above analysts' average forecast of 16.9 percent.

Margin development was particularly strong on the mobile phones side. I think the investment story has now even improved if Nokia is to remain at such margin levels, said Marko Alaraatikka, Portfolio Manager at Evli Funds in Helsinki.

Margins were so strong thanks to Nokia's economies of scale and superiority as well as due to Motorola's weakness, he said.

Nokia's closest rival for years, U.S.-based Motorola, has reported losses so far this year as it failed to win more business from Nokia in the lower end of the market, and lost market number two spot to Samsung Electronics.

Nokia's lead over Motorola increased to its widest ever in the April-June quarter.


Nokia sold 100.8 million phones in the quarter, more than its three closest rivals combined, and estimated its market share at 38 percent, above analysts' consensus of 37.7 percent, and up from 34 percent a year ago.

The Finnish company has a strong lead in emerging markets such as China and India, which it has been fiercely defending.

Emerging markets are the key issue; they are ahead in Africa, in China ... everywhere you look it's emerging markets, they have a wider distribution network there, they are reaching more consumers, said Neil Mawston from Strategy Analytics.

Strategy Analytics said Nokia should reach 40 percent market share during second half of the year.

When Nokia last approached 40 percent market share in 2003, operators complained that the Finnish firm's position was too dominant.

Average selling price for Nokia cellphones in the second quarter was 90 euros, compared with the average forecast of 90 euros in the poll and 89 euros in the first quarter.

In mobile phones, average sales prices went up, but it still gained market share, said portfolio manager Timo Ritari from Tapiola Asset Management, which oversees 5 billion euros in funds, including Nokia shares.

This increases trust in this share in this market situation, compared with its competitors, he said.

Nokia said it expected global sales of mobile phones to grow 10 percent or more this year from 978 million phones in 2006, compared with its earlier forecast of at best 10 percent growth.

Nokia stock trades at 15.7 times expected 2008 earnings, valuing the firm at around 90 billion euros, below many other technology firms' ratings, as many investors think the dominant player in the cellphone market has more to lose than to gain.


Nokia Siemens Networks, which started operations in April, reported an operating loss of 1.3 billion euros, including restructuring charges and inventory write-downs. Excluding the one-off items, Nokia said the loss from operations was 64 million euros.

Networks' figures were depressing and show there is need for further restructuring, Carnegie's Lauri Rosendahl said.

The world's mobile network gear makers are suffering from cost-cutting at top telecoms operators, who are increasingly clubbing together to share network equipment.

Results of the three top telecoms equipment vendors were weaker than expected in the April-June quarter, due to clients' stagnating spending on equipment in key European markets, pushing vendors to cut prices.

Price competition in the infrastructure market was unusually aggressive, Nokia said in a statement.

Nokia said the venture aims to reach its annual cost savings target of 1.5 billion euros by the end of 2008, compared with an earlier plan of 2010, and said it is targeting further cost savings of 500 million euros per year. (Additional reporting by Terhi Kinnunen, Sami Torma and Sakari Suoninen)