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Nokia's profits surge

Despite falling prices, Nokia squeezes out profits on sales of 106 million handsets in the fourth quarter of 2006.

Nokia, the No. 1 cell phone maker in the world, reported a 19 percent increase in profits based on strong sales and steady profit margins.

In the fourth quarter, Nokia posted earnings of $1.65 billion (1.27 billion euros) compared with earnings of $1.39 billion (1.07 billion euros) in the same quarter a year ago. For all of 2006, Nokia saw profits of $5.59 billion, up from $4.69 billion in the previous year.

Nokia shipped 106 million handsets in the fourth quarter, an increase of 27 percent from a year ago. It gained market share in every region of the world except North America.

The company's chief executive, Olli-Pekka Kallasvuo, called 2006 a "good" year for Nokia. "We had record sales, but as good as 2006 was it could and should have been better. We are looking for ways to continue to improve our business."

Kallasvuo noted that there had been some production delays in the fourth quarter for Nokia's higher-end multimedia phones, which have cameras and music players embedded. But he said those issues have been improved. As a result, sales of these devices grew only about 6 percent during the quarter. The company had expected sales of these more expensive phones to grow about 24 percent.

But even as total shipments of handsets increased during the quarter, the average price of Nokia's handsets fell. Prices have fallen consistently throughout the year as Nokia targets emerging markets such as India and China with lower-end phones. In the fourth quarter, the average price was $116 (89 euros). In the third quarter, it was $120, and in the fourth quarter of 2005, it was $128.

Unlike competitors such as Samsung and Motorola, Nokia still managed to make a profit despite falling prices. Motorola, which is Nokia's biggest rival, saw profits drop 48 percent in the fourth quarter of 2006 when it reported earnings last week. The company is cutting 5 percent of its work force in an effort to improve operating expenses.

Samsung Electronics also saw profits decline 8 percent in the fourth quarter. The company blamed the shortfall on poor sales of products other than mobile handsets, which actually sold well in the quarter. Samsung reported it had sold 32 million handsets in the fourth quarter.

Sony Ericsson also bucked the profit trend and reported that it had more than tripled profits during the fourth quarter, mainly through sales of high-end devices.