Aug. 2, 2007 (Investor's Business Daily delivered by Newstex) --

Nokia shares hit a six-year high on Thursday after the No. 1 cell phone maker posted strong second-quarter results.

The Finland-based company also bolstered its global market share lead in the quarter to 37% from 33.4% a year earlier, according to IDC.

Its U.S. shares rose 2.49, or 8.8%, to 30.90. The stock is up 52% this year.

Early Thursday, the company said its earnings more than doubled, fueled by strong profit margins for handsets. Nokia's (NYSE:NOK) operating profit margin of 18.7% was its highest in three years. The margin for its cell phone business was 20.9%, far above its own target of 17.5%.

Handset sales of 100.8 million units also shattered its expectations of 97 million, and were 10 million more than the first quarter.

The strong profit margins were a result of "a solid top-to-bottom product lineup and an industry-low cost structure," said analyst Mark McKechnie of American Technology Research.

Nokia said its per-share profit, excluding one-time items, rose 39% from a year earlier to 0.32 euros, or 43 cents using Thursday's conversion rate. That's 5 cents more than analysts expected, according to American Technology Research.

Revenue of $17.2 billion, or 12.2 billion euros, rose 28%, meeting expectations.

In a conference call with analysts, Nokia Chief Executive Olli Pekka Kallasvuo characterized the results as "simply excellent."

Nokia's midrange 6300 phone and its high-end N95 and E65 phones, all new products, accounted for 20% of Nokia's handset sales and almost 30% of profit.

Nokia raised its handset shipment forecast for the year more than 10%, which would put total handset unit sales at 1.1 billion units.

"For the device business, these are very good results indeed," Mark Garner, an analyst at research firm Ovum, said in a report. "It brings Nokia closer to its stated aim of 40% share in the handset market."

Nokia's 29% jump in handset shipments soundly beat the market's average growth in the quarter of 16.5%, according to IDC.

"They're hitting on some really powerful cylinders right now," said IDC analyst Ramon Llamas.

Motorola's MOT pain was Nokia's gain. Motorola (NYSE:MEU) (NYSE:MOT) , struggling to come up with a successor hit product to its Razr cell phone, slipped to No. 3 in the market from No. 2, behind Samsung, IDC said.

Kallasvuo said "the competitive picture in the second quarter was very easy," but he cautioned that Motorola is working hard on a comeback and that the overall "competitive situation remains tough."

Most of Nokia's handset shipment growth came from Europe and Asia, up 32% and 50%, respectively, from a year ago. The U.S. remains its sore spot. Here, its handset sales fell 22% to 527,000 units. In the U.S., Nokia ranks only No. 4, behind Motorola, LG Electronics and Samsung, respectively, says IDC.

One issue is that Nokia phones are based on a European standard know as GSM. AT&T (NYSE:SBT) (NYSE:T) T supports GSM, but much of the U.S. uses the other primary standard, called CDMA. Nokia doesn't yet sell a CDMA phone in the U.S., partly as a result of an intellectual property dispute with CDMA developer Qualcomm (NASDAQ:QCOM) QCOM.

Last quarter, Nokia stepped up efforts to work more closely with U.S. carriers Sprint (NYSE:FON) Nextel S and Verizon (NYSE:VZC) (NYSE:VZ) Wireless. (NYSE:VOD) Both support CDMA. Nokia's also trying to build a closer relationship with AT&T.

The primary seller of Nokia phones in the U.S. is T-Mobile USA, a unit of Deutsche Telekom DT of Germany.

"We're looking for these efforts to bear fruit," ATR's McKechnie said.

The other drag on Nokia in the quarter was its 50-50 telecom gear joint venture with Siemens (NYSE:SI) SI, which had disappointing results in its first full quarter of operations.

"It was a challenging quarter for the new company, which fell short both in terms of revenue and margins," Kallasvuo said.

The company, Nokia Siemens Networks, competes with Alcatel-Lucent (NYSE:ALU) ALU, LM Ericsson (NASDAQ:ERICY) ERIC and Nortel Networks (NYSE:NT) NT.

Newstex ID: IBD-0001-18632698

Originally published in the August 2, 2007 version of Investor's Business Daily.

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