Nokia is finally having a break

STOCKHOLM—Shares of Nokia Corp. NOK1V.HE +6.99% surged on Thursday after the Finnish mobile network company said its expectations for 2014 have improved, and as its financial performance in the latest quarter was boosted by the sale of its handset business to Microsoft Corp. MSFT -0.55%

Nokia swung to a second-quarter net profit of €2.51 billion from a year-earlier loss of €226 million, buoyed by a €3.2 billion gain from the sale of its handset business to Microsoft in late April.

Relieved of its loss-making handset unit, Nokia's main business now is its mobile-network unit, a former joint-venture with Siemens AG SIE.XE +0.93% that accounts for almost 90% of Nokia's revenue.

Nokia acquired the remaining stake in its the wireless-networks venture for €1.7 billion last year, and the business counts as the third largest mobile network company behind China's Huawei Technologies Co. Ltd. and Sweden's Ericsson. ERIC-B.SK +1.33%

Long plagued overcapacity and mired in red ink, Nokia's mobile-network unit returned to profitability last year, after a period of extensive restructuring. On Thursday, Nokia raised its outlook for the unit and said it expects revenue for the network business to grow in the second half from a year earlier. Underlying profitability for the network business this year will be at, or slightly above, Nokia's long-term target range of 5% to 10%, the company said.

In the second quarter, however, revenue for the network business fell 8% compared with a year earlier, but Nokia said that was mainly down to unfavorable foreign-exchange fluctuations and restructuring efforts. Nokia has exited several contracts and sold off parts of the business over the past year, to focus solely on mobile-broadband equipment. Revenue would have increased 1% on the year excluding these factors, said Rajeev Suri, who took over as Nokia's chief executive in April.

Echoing comments from executives at Ericsson, which reported earnings last week, Mr. Suri added that prospects are bright for the mobile network industry this year. He cited an improvement in Europe, where mobile phone carriers at last are starting to ramp up spending on high-speed fourth generation networks, after years of lagging behind countries like the U.S., Japan and South Korea.

"Right now, there's deal momentum in Europe," Mr. Suri said.

Nokia has also held on to a digital mapping business that sells digital mapping platforms for car navigation systems, and internet companies like Amazon.com Inc. AMZN +0.52% and Microsoft.

It also has one of the mobile industry's largest portfolios of patents, and a €6.5 billion pile of net cash. While much of the cash will be tunneled back to shareholders as dividends and share repurchases, Nokia will be in a position to continue pursue acquisitions, Mr. Suri said.

The company bought five smaller-sized companies in the second quarter and will continue to pursue smaller acquisitions that "speeds up time to market, or gives us customer footprint," Mr. Suri said.

Excluding the gain from the sale of its handset unit and losses from its discontinued operations, Nokia's net loss narrowed to €26 million in the second quarter, from a €113 million loss for the non-device operations in the same period a year earlier. Overall revenue fell to €2.94 billion from €3.16 billion, while operating income increased to €284 million from €12 million.

Nokia's move to sell its ailing handset business to Microsoft and focus on mobile networks has been widely cheered by investors and analysts. At 1310 GMT, the company's stock traded 8% higher at €6.1, the highest level since May 2011.

Write to Sven Grundberg at sven.grundberg@wsj.com