Nokia announces fall in profits, Microsoft deal

Mobile phone giant Nokia today announced a fall in net profits for the first quarter of 2011, dipping one per cent to €344 million (£303m), compared to €349 million (£308m) for the same period last year.

But the Finnish company's sales were up nine per cent to €10.40 billion (£9.2bn), from €9.5 billion (£8.4bn) in the same period in 2010. Smartphone sales rose six per cent to €7 billion.

Nokia shares today rose three per cent in pre-market trading on Wall Street after the announcement.

Despite the modest fall in profits, news of Nokia's earnings exceeded many expectations. Business news website Bloomberg had predicted a massive 49 per cent fall in profits. But the figures still underline the essential problem the handset maker faces: it's selling more, but making less money.

It's exactly the reverse of the story from chief smartphone rival Apple, maker of the iPhone 4. While sales of Apple's mobile devices slowed a little - the newly-released iPad 2 sold 'only' 4.69 million units last quarter, against analysts' predictions 6.3 million - the company's profits nearly doubled.

Smartphones offer the chance of bigger profits, allowing the development of 'walled garden' ecosystems in which makers take a cut of the proceeds from apps and other services - but so far, Nokia has failed to make many in-roads into the smartphone market.

The latest version of its home-brewed operating system Symbian ^3 is lagging behind Apple's iOS and Google's Android and collaborative OS venture Meego also looks set to be canned, after failing to be deployed on many handsets.

Failure in the smartphone market is exactly the problem Nokia CEO Stephen Elop hopes to address with the company's controversial deal to develop handsets for Microsoft's Windows Phone 7 operating system, details of which will be announced in full today.

Elop today said that Nokia had signed a "definitive" agreement with Microsoft, and "product design and engineering work is well under way."

Nokia remains the biggest mobile phone maker in the world, but today's figures see its market share slip from 33 to 29 per cent as it faces fierce competition in the lucrative smartphone market from RIM's Blackberry, the Apple iPhone and handsets based on Google's Android OS.