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Nokia turns a PROFIT. Sort of

Ship may not be sinking but passengers seemingly prefer lifeboats

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Nokia announced a pre-tax profit of €375m for the fourth quarter of last year today, suggesting the deep cuts of the past year, including the axing of around 20,000 employees, have allowed management to steady the ship. The profit included sales of its corporate HQ and $250m support payments from Microsoft.

Group net sales in the quarter were €8bn, down from €10bn a year ago, with annual sales down to €30.17bn in 2012 from €38.65bn in 2011. Nokia made an operating loss of €2.3bn in the year, compared to a loss of €1bn in 2011.

Low cost feature phone sales have improved but "smartphone" sales fell from 19.6m in Q4 2011 to 15.9m in Q4 2012. Nokia torched its Symbian roadmap a year ago and released only one Symbian device in 2012, a high-end imaging phone. Windows Phone 7.5 devices failed to make up the shortfall while supply constraints on components for new Windows 8 devices also had an impact on revenue.

In fact, if it wasn't for the addition of 9.3m Asha devices - which are Series 40 phones pumped up with performance-enhancing Java steroids - to the smartphone category, things would look much worse. Apple yesterday announced it had shifted 47.8m iPhones in Q4 alone - which was perceived as "disappointing". It's a measure of how far Nokia has yet to go.

"The increase in Lumia volumes is not yet compensating for the decline in Symbian volumes and this is expected to have a negative impact in Q1," said CFO Timo Ihamuotila.

The average selling price (ASP) of Nokia's smartphones rose from €160 in Q3 to €192 in the final quarter. Nokia's problem was an overproduction of Lumias a year ago which failed to be perceived as competitive high-end devices, leading to lower prices over the year to get rid of inventory. The new Lumia 920 is, at last, a premium product - but supply was constrained and Nokia struck exclusivity deals with selected operators in only a few markets. (China and India did not figure.)

Nokia Siemens Networks sales rose 5 per cent from a year ago to €3.98bn in Q4, but with a record profit of €251m pre-tax.

One glimmer of hope is that the iPhone effect may be waning - half of all Apple's shipments were older models than the iPhone 5. And another - Nokia has €4.4bn of cash on hand.

As we concluded after the earnings preview - the ship is stable but really needs some passengers. A transcript of the earnings call is here. ®

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