Inching closer to its long-sought goal of 40% of the global market, Nokia Corp. confirmed last week that its business is firing on nearly all cylinders.

The Finnish vendor notched impressive, year-on-year, double-digit gains in handset volumes in every region but North America. The company’s overall revenue and profits are up sharply, exceeding the market’s expectations, and last week that news sent Nokia’s stock up as much as 8%.

The vendor’s nearly 101 million global handset shipments was enough to earn it 38% of the global market, a quick increase of two share points in one quarter and a four-point gain over the year-ago quarter. Coupled with Motorola Inc.’s precipitous decline, particularly in emerging markets where Nokia excels, the market leader has put some distance between itself and challengers such as Motorola and Samsung Electronics Co. Ltd., which has captured the No. 2 position.

World beater, U.S. struggles

Even a world beater such as Nokia, however, faces specific, immediate challenges.

Handset shipments to the U.S. in the second quarter fell 21% year-on-year to just 4.1 million units, out of approximately 34.4 million units sold at retail. Motorola, whose global market share is sinking, still holds a vast lead in the U.S. market; it sold more than 11 million devices in its home market last quarter.

(Nokia’s declining number of units shipped was somewhat at odds with recent data on U.S. retail sales from Strategy Analytics that showed Nokia gaining 1.5% for the quarter. Retail sales, however, can reflect gains with consumers while shipments decrease, presumably to stabilize inventory.)

World hegemony perhaps cannot be declared without success in North America. Nokia has said it will methodically pursue business with top-tier carriers here, even as it grows alternative channels—or “complementary channels,” as Nokia is careful to say to avoid alienating its customers.

But the Finnish vendor’s performance in the quarter just past provides further confirmation that it has succeeded in addressing both the volume-based, low-margin, entry-tier handset business in emerging markets as well as in the mid- and high-tier segments that rely on the replacement cycle in mature markets. That’s going to buy it time to consider how best to bolster its market leadership.

“Our Nokia thesis is based on a 1˝- to 2-year holiday while Motorola regroups,” wrote analyst Mark McKechnie at American Technology Research, prior to Nokia’s results.

The “holiday,” of course, is nothing more than a respite from very close competition as Nokia restructures its business units from a position of strength and adjusts its prices, at least in emerging markets, to profit while fending off challengers.

The numbers

A brief review of the financial numbers Nokia posted:

The Finnish vendor’s overall revenues reached $17.2 billion, a 28% increase from the year-ago quarter. Operating profits totaled $3.2 billion, a 57% jump from the year-ago quarter. Net profits jumped to $3.9 billion, a 148% increase from the year-ago quarter. Handset shipments reached nearly 101 million units, up 29% from the year-ago quarter. Average selling prices were $123, up slightly from the previous quarter’s ASP of $122—analysts credited the market’s shift to higher-priced 3G products and Nokia’s success in mid- and high-tier device sales.

To place Nokia’s handset volume in context, the vendor shipped nearly triple the volume of handsets in the quarter of its next closest rival, Samsung, which shipped 37.4 million units worldwide.

The Finnish handset giant posted double-digit, year-on-year gains in nearly every region of the world—from 21% in Latin America to 36% in China/Asia to nearly 37% in the Middle East and Africa.

According to Martin Garner, analyst at Ovum, Nokia’s mobile-phone division—which makes entry- and mid-tier handsets—had flat revenues but improved operating profits, due to uptake of the vendor’s new mid-tier products such as the Nokia 6300. The vendor’s multimedia unit, which makes the high-tier, N-series phones, grew revenues by 43% and margins up four points to 20%. Garner attributed the growth to sales of products such as the N95.

Not all rosy

One dim spot for the vendor

was its new joint venture, Nokia Siemens Networks, which lost $1.7 billion, of which $407 million was due to costs related to the joint venture.

CEO Olli-Pekka Kallasvuo, in prepared remarks, credited the company’s device business for its robust quarter. The networks business, however, was weak and he said that “adverse developments require decisive action.” Kallasvuo said that the two companies in the joint venture would accelerate and increase the JV’s “cost synergies target.” Whether that implied deeper job cuts at the new unit remains to be seen.

Nokia’s successful quarter and its positive outlook also boded well for component suppliers, including the vendor’s major chip suppliers such as Texas Instruments Inc., Qualcomm Inc., RF Micro Devices, Anadigics and Skyworks Solutions Inc., McKechnie said.

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