Updated from 10:24 a.m. EDTNokia ( NOK) saw signs of stability in the mobile phone market but cut its networking equipment sales target amid a continued slump in telco spending. The Finnish phone shop met adjusted profit expectations for the first quarter and says it has seen a significant decline in the massive surplus of mobile phones in most markets. Investors took this as a sign that the worst may be over for Nokia and sent the shares up 10% early Thursday. On a conference call with analysts, Nokia chief Olli-Pekka Kallasvuo said the company had managed through "an unprecedented" inventory glut. He added that mobile phone demand was "no longer falling in an uncontrolled manner" and that he was "encouraged by the signs of stabilization." The picture wasn't quite as cheery on the wireless infrastructure side of the business, however. Sales for the gearmaking joint-venture between Nokia and Siemens ( SI) are expected to fall 10% below 2008 levels, Nokia said. That was below the company's prior target. Nokia blamed belt tightening by phone companies, an increase in vendor financing used by companies like Alcatel Lucent ( ALU) and Cisco ( CSCO) that loan money to customers that buy gear, and a decision by Chinese buyers to buy more from Chinese suppliers. On the cost front, Nokia says it fired 3,000 people in the first quarter and took a separation charge of $122.5 million. The company has also restricted employee travel, closed facilities and exited the phone business in Japan to help further reduce expenses.
The efforts helped preserve Nokia's gross margin at 33.8%, even with the prior quarter. And while Nokia sold 93 million phones in the first quarter, 3 million more than analysts had anticipated, the average costs of the phones fell sharply to $85 from $93 in the fourth quarter. Nokia says this was due to more people buying cheaper phone than expensive phones. One segment of encouraging news for Nokia fans was the strength of phone sales in China. "Nokia's volumes in China and Asia are now more than double the phone volumes in Europe," says Crown Global Research analyst Tero Kuittinen. This isn't good news for competitors like Motorola ( MOT) and Sony ( SNE) Ericsson ( ERIC), says Kuittinen "Motorola and Sony Ericsson are flopping out of Asia while Nokia's low-end offensive intensifies," Kuittinen says. Nokia also confirmed earlier reports by TheStreet that it was preparing a new crop of touchscreen smartphones later this year. Nokia shares were rising $1.48, or 11.1%, at $14.84 Thursday.