Nokia Q1 beats forecasts, nails Microsoft deal

Nokia Oyj's earnings fell less than expected in the first quarter and the company signed a final agreement to start using Microsoft Corpsoftware, sending its shares 3 percent higher.

But gains were capped by the company's forecast for profits to fall in coming quarters, due in part to Japan's earthquake which hit component supplies across the technology sector.

Underlying earnings per share fell to 0.13 euros in the three months through March from 0.14 a year earlier, beating analysts' average forecast for 0.10.

Nokia's market share fell to 29 percent from 33 percent as nimbler Asian rivals ate into its dominant position in cheaper phones and it continued to lose out in more expensive smartphones to Apple Inc and others.

To turn around its smartphone fortunes, Nokia's new Chief Executive Stephen Elop in February unveiled a deal to start using Microsoft software instead of its own Symbian platform.

Nokia said the deal enables it to cut annual costs by around 1 billion euros ($1.5 billion). Labour union officials said they expect Nokia to start lay-off talks next week.

"Finalisation of the agreement with Microsoft means Nokia can now focus on execution, but margin guidance underlines that difficult times lie ahead as it transitions the portfolio," said analyst Geoff Blaber at CCS Insight.

Nokia's key phone unit reported an operating profit margin of 9.8 percent for January-March, well ahead of analysts forecast of 8.6 percent, but said for the full year the margin would fall to within a 6 to 9 percent range.

Analysts on average expected the margin to drop to 8.5 percent.

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Shares in Nokia were 3 percent higher at 6.11 euro by 1057 GMT, outperforming 1.3 percent gain in the STOXX Europe 600 Technology Index. The stock remains well down on a record 65 euros seen in 2000.

"It's a bit of a no-score draw really. You've got a solid set of numbers but guidance is bad," said Richard Windsor, global technology specialist at Nomura. "You've got a little bit of relief going on today but it probably doesn't have legs in it."

Nokia forecast second-quarter sales at its phone unit would fall to between 6.1 and 6.6 billion euros, well below analysts' average forecast of 6.9 billion, partly due to component shortages stemming from the March earthquake in Japan.

"We expect these factors and their negative impact on our mobile devices volumes to continue not only during the second quarter 2011 but also through the third quarter 2011 at least," Nokia said in a statement.

Despite its bargaining power analysts say Nokia is likely to be among the phone makers worst hit by the disruption to supplies from last month's devastating Japanese earthquake.

It makes 450 million phones a year, which means quick and big changes in component supply are difficult.

Nokia's smaller rival Sony Ericsson said this week there were shortages of displays, batteries, camera modules and some printed circuit boards.

Nokia's telecom network gear arm Nokia Siemens Networks reported a surprise profit for the quarter and said Chinese regulators had approved its $975 million acquisition of Motorola Solutions' gear business, clearing the last major hurdle for the deal to go through.

The deal, which Nokia Siemens expects to close on April 29, will make the venture the second-largest globally and give it better access to the North American market.