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Nokia ekes out profit, but investors still on hold

There have been multiple profit warnings and earnings shortfalls from Nokia over the past two years. So the ailing Finnish handset maker's desire to rush out some good news on Thursday was just about understandable – even if this resolves few of the fundamental questions which surround the group.

Two weeks ahead of its formal full-year earnings release, Nokia revealed that its core devices and services division made an underlying profit in the fourth quarter. The non-IFRS profit margin there is likely to be between break-even and 2 per cent, it said, with smartphone sales reaching €1.2-billion ($1.57-billion) in the final three months of 2012. Those sales included 4.4 million Windows-based Lumia products.

This is certainly progress. In the third quarter, smartphone sales were under €1-billion, with less than three million Lumia products shipped. That said, sales of Lumia products were always expected to build in the runup to Christmas and the 4.4 million figure is not substantially ahead of market forecasts. It is also only a tiny proportion of global smartphone volumes, which are estimated to have topped 200 million units in the last quarter of 2012.

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In short, nothing in Thursday's announcement will change anyone's view on whether Nokia/Microsoft can carve out a meaningful position in this fast-evolving market and provide serious competition to the dominant Apple and Android-based products.

The earnings situation is a relief given previous fourth-quarter guidance of a negative-6-per-cent operating margin in the devices division and Nokia's dwindling cash buffer (a net €3.6-billion in September). This seems to reflect faster cost-cutting, although also €50-million of non-recurring intellectual property income. Sadly, though, Nokia warns that margins may turn negative again in the seasonally-weak current quarter. Its shares closed 10.8 per cent up but the jury should stay out.

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