Nokia's network unit beats on N. America growth

By Jussi Rosendahl and Eric Auchard

HELSINKI/FRANKFURT (Reuters) - Nokia reported higher than expected profits at its core Networks business on Thursday, on the back of strong sales in North America, but group profits took a knock from higher costs at its Technologies unit which handles its patents and develops new products.

The Finnish company, which sold its former flagship phones business to Microsoft last year, also proposed a smaller annual dividend increase than many analysts predicted, resulting in its shares dropping 4.8 percent in Helsinki trade at 0906 GMT.

The company's Networks unit, which ranks third in the global mobile telecoms equipment market after Ericsson and Huawei HWT.UL>, was previously a troubled joint venture with Germany's Siemens. The business has only turned around after years of divestments, job cuts and a sharpened focus on 4G mobile broadband.

The unit's fourth-quarter operating profit rose to 470 million euros ($530 million) or 14 percent of sales, from 397 million euros in the previous quarter.

Analysts in a Reuters poll had on average expected a profit of 415 million euros and a margin of 12.4 percent.

Nokia said Network's growth was primarily due to a surge in sales in North America, a smaller market for the Finnish company compared to its European rivals, but one where it is gaining ground, especially in higher-margin 4G mobile broadband gear.

Networks saw modest growth in Europe, Middle East and Africa, but only 1 percent growth in fast-growing Asia Pacific markets. China's growth dipped 3 percent after a surge in sales over the past year, while mature markets such as Japan and Korea also slowed.

Gartner industry analyst Sylvain Fabre said while the company delivered stand-out results in North America, the danger longer term is that Nokia is relying on maturing markets such as the United States, Japan and Korea.

"What we need to see is a mix of sales now from where the future growth in this market is coming from in Asia, Latin America and Africa," Fabre said.

Nokia said it expects the network unit's operating margin in 2015 to be in its long-term target range of 8 and 11 percent, compared to a margin of 12.2 percent from last year.

"Last year was exceptionally good for Networks but the company did not provide any support for this to be the case this year," said Nordea analyst Sami Sarkamies, who has a sell-rating on the stock.

"It is possible that the guidance will be lifted during the year as the unit's forecasts have repeatedly been very conservative," said Inderes analyst Mikael Rautanen, who has a buy-rating on the stock.

Chief Executive Rajeev Suri said the company was focused on growth in 2015 following years of serial restructuring: "While 2014 was a year of reinvention, we see 2015 as a year of execution."

"As we pursue ... opportunities, we will not shy away from investing where we need to invest," said Suri, who in his previous role led the turnaround at the Networks unit.

Nokia's Technologies unit, which includes patent and brand licensing and new product development, showed quarterly operating profit of 77 million euros, below market forecasts of around 105 million euros.

($1 = 0.8868 euros)

(Additional reporting by Anna Ercanbrack in Helsinki; Editing by Greg Mahlich)