HELSINKI, Oct 29 — Nokia yesterday predicted a more profitable future for its NSN networks equipment and software unit, raising hopes for growth in what will be the Finnish firm’s main business after its former flagship phones division is sold to Microsoft in the new year.

Third-quarter results also showed slow but steady growth in Lumia smartphone sales, although analysts said Microsoft would still face a tough time in pushing its way into the competitive consumer devices market with the Nokia deal, which is due to close some time in the first quarter.

Sales of Lumia smartphones jumped 19 per cent quarter-on-quarter to 8.8 million units, thanks to the launch of more models and what the company said was strong demand particularly for the Lumia 520, while sales of basic phones rose 4 per cent from the previous quarter to 55.8 million units.

However, the phone division’s operating margin was a negative 1.6 per cent in the last quarter.

“I still think it is not obvious they are going to turn that side around,” said Greger Johansson, analyst at research firm Redeye.

Shares in Nokia rose 6 per cent to the year’s high of €5.35 after the company forecast NSN’s profit margin would improve in the fourth quarter to around 12 per cent, plus or minus 4 percentage points, from 8.4 per cent in the third quarter and 9.3 per cent a year ago, thanks to its cost-cutting programme.

Stripping out the business being sold to Microsoft, Nokia said its underlying group operating margin in the third quarter would have been 11.5 per cent, 7.7 percentage points higher than the actual underlying margin.

The headquarters of Nokia Solutions and Networks in Espoo, Finland: Predicting a more profitable future. — Reuters/Lehtikuva pic

NSN’s third-quarter core operating profit fell 33 per cent from a year ago to €218 million (RM943.2 million) on sales down 24 per cent at €5.2 billion, below the average profit forecast of €228 million given in a Reuters poll, as the impact of earlier cost cuts waned and major contracts were completed.

But Nokia said it expected NSN’s sales to show “solid” growth in the final three months of the year after what had been a seasonally weak third quarter.

Mika Heikkila, fund manager at asset management company Taaleritehdas, said investors had also expected a worse result after weaker than expected results from Swedish network equipment rival Ericsson last week.

“There were fears, after Ericsson’s results, about how they would give the outlook,” he said. “I think this report will calm things down. It gives more information on how they will be going forward, it shows Nokia is coming back.”

NSN, which will account for around 90 per cent of the group’s sales after Microsoft completes its acquisition of the handset business, sells a range of mobile broadband equipment, software and services to network operators and has transformed itself over the past year from an unprofitable venture into a source of cash.

Had the Microsoft deal already been completed Nokia said it would have ended the third quarter with net cash of €7.5 billion, instead of an actual €2.4 billiond with NSN contributing €1.5 billion.

In August it acquired Siemens’ share of the NSN joint venture, ahead of its agreement to sell the devices unit to Microsoft for €3.8 billion.

“The profit in networks now is already pretty decent. If they could get some speed on sales, they can generate some growth, and that could be a very interesting investment case,” said Redeye’s Johansson. — Reuters