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New Chief Executive Stephen Elop put his mark on Nokia (NOK-N), cutting 1,800 jobs and delaying a key product after parts shortages helped the world's largest handset maker post stronger-than-expected profits.
Third-quarter underlying earnings per share dropped to 0.14 euros from 0.17 euros a year ago, but solid demand for its cheap smartphones helped it beat all forecasts -- which ranged from 0.08 to 0.12 euro -- in a Reuters poll of 36 analysts.
Canadian Elop, a former Microsoft executive, took the helm on Sept. 21 from Olli-Pekka Kallasvuo, who presided over a halving in Nokia's market value during his four years in charge when smartphone rivals Apple and Google surged ahead.
"I think it's an excellent report given that the company's portfolio of products was very weak in the quarter," said Morgan Stanley analyst James Dawson.
"The handset profits are 30 percent ahead of expectations, so it's clearly a very big beat versus what the market was looking for," Dawson said.
Nokia stopped the profit slide this year through vigorous cost cuts. Now it plans to cut close to 3 percent of staff at its main business in a move that would hit most product creation at Symbian Smartphones and its Services organization.
PRICES RISE ON LOW-END PROBLEMS
The average sale price in its key phone unit rose to 65 euros -- the first annual price rise in almost a decade – as new, cheap smartphones like the C5 and the E5 went on sale and parts shortages capped sales of the cheapest cellphones.
"The main contribution here is really from component shortages and that hit us more in the lower end where Nokia is strong," Chief Financial Officer Timo Ihamuotila told a conference call with analysts.
Nokia sold 110.4 million phones in the quarter, with its market share dropping to just 30 percent, missing all analysts' expectations.
We lost market share in Q3 as we were not able to keep up with demand in the low end," CEO Elop told the call.
Nokia said it expects part shortages to continue weighing on the cellphone business into 2011, while it forecast its phone unit's underlying operating profit margin to be 10-12 percent in the December quarter.
Analysts had expected a margin of 11.4 percent in the poll.
Nokia shares have still dropped around 7.5 percent so far this year -- mostly due to problems on the fatter-margin high-end market -- compared with a 10 percent gain in the STOXX Europe 600 technology index.
Nokia is benefiting from a boom of cheap smartphones – with Strategy Analytics saying on Thursday the overall smartphone market jumped 78 percent year-on-year in the quarter -- but it has lacked a high-end hit model since the N95, launched in 1996.
"It's about selling family cars rather than sports cars -- that's where Nokia is making the money," said Gartner analyst Carolina Milanesi.
Nokia's N8 model, its first serious rival to Apple's iPhone, started shipping on the last day of September and sales are yet to start on many markets.
On Thursday Elop said he has decided to delay launching Nokia's first product using the new MeeGo software platform, which is seen as the Finnish group's key asset in the battle for a larger share of the high-end market.
"My assessment was that it would be a 2011 event," he said.
Elop had risen rapidly over the past five years from CEO of Web software maker Macromedia to chief operating officer of Juniper Networks to head of Microsoft's Business Division, which makes Office software.