Update: Nokia posts big Q2 profit on one-time gain from Siemens venture

Second-quarter net profit soared at Nokia thanks to a large one-time gain from the company's new telecommunications equipment manufacturing venture with Siemens.

Net profit increased 148 percent to €2.83 billion ($3.8 billion as of June 30, the last day in the period being reported), from €1.14 billion in the same period a year earlier, Nokia said Thursday.

The huge surge in profit was fueled by a €1.88 billion gain that Nokia booked from the launch of the new equipment venture, Nokia Siemens Networks.

Net sales increased 28 percent to €12.59 billion, from €9.81 billion in the year-earlier period. However, the company's results for the second quarter include those of the networking venture, making comparisons with last year's results misleading.

Despite the one-time gain from launching Nokia Siemens Networks, the new venture did not perform well. It reported a second-quarter operating loss of €1.3 billion on sales of €3.44 billion.

"Both net sales and margins were weak (at Nokia Siemens Networks) and these adverse developments require decisive action," Nokia said in a statement. It said it would accelerate cost-cutting efforts at the division and try to achieve the planned savings by the end of 2008 rather than by 2010.

Nokia shipped 100.8 million devices in the second quarter, up 11 percent from the previous quarter and 29 percent from the same period a year ago. The company estimated its global market share at 38 percent, up from 34 percent a year earlier.

In a webcast call with analysts, CEO Olli-Pekka Kallasvuo said he was "particularly encouraged by the success of a number of recently launched higher-end devices," including the N95 model, which made a strong contribution to the company's increased profitability.

Although Nokia was able to increase its handset sales, particularly in the high-growth Asia-Pacific region, its average selling price in the second quarter fell to €90, from €102 in the same period a year earlier. The company attributed the lower average price to the significantly higher number of low-cost entry devices it sold.

In the months ahead, Nokia plans to ramp up production of its single-chip entry devices to meet growing demand in markets such as India and China, according to Kallasvuo. Next year, the company will launch a series of entry phones with single-chip sets manufactured by Infineon Technologies, in addition to those currently equipped with chips from Texas Instruments, he said.

More than 900 million people now have Nokia devices, according to Kallasvuo.

In an effort to steer Nokia Siemens Networks toward profitability, the CEO announced an additional €500 million in cost cuts, on top of the €1.5 billion targeted by the end of 2008.

In the venture's core mobile network business, Kallasvuo said Nokia faced stiff -- and in some cases unsustainable -- price competition from Sweden's Telefonaktiebolaget LM Ericsson and China's Huawei Technologies.

Indicating the need to make money to stay in business, Nokia Executive Vice President and Chief Financial Officer Richard Simonson said, "economic gravity applies to everyone."