By Supantha Mukherjee

STOCKHOLM (Reuters) – Finnish telecom equipment maker Nokia reported on Thursday quarterly operating profit ahead of market expectations, boosted by strong demand for 5G gear, and sees signs of a global chip shortage easing.

Nokia’s shares rose 4% in early trade.

A semiconductor shortage that began around the height of the pandemic in 2020 has affected a range of industries, including telecoms. Nokia said it expects the pressure to ease through the second half of 2022 and the first half of next year.

“The overall direction in the semiconductor industry is positive at the moment, but we did continue to have constraints in the second quarter,” Chief Executive Pekka Lundmark said in an interview. “Our order book would have enabled a faster growth had there been more components available.”

Supply-chain disruptions also led to increased costs, eroding margins, and forcing companies to increase prices.

Demand for chips is expected to fall later this year as smartphone and PC sales cool, increasing supply to other industries.

Gartner forecast mobile phone sales would fall 7.1% this year, revising its earlier estimate of a growth of 2.2%.

While Nokia’s margin fell slightly in the quarter, rival Ericsson’s quarterly core earnings missed expectations.

“Following the margin warning last week from peer Ericsson, we think Nokia is performing well in the face of inflation and supply chain risks and we continue to see strong margin expansion opportunities beyond near-term headwinds,” Citi analysts wrote in a research report.

Nokia’s second-quarter comparable operating profit rose to 714 million euros ($729.71 million) from 682 million last year, beating the 636.52 million euro mean forecast of 11 analysts polled by Refinitiv.

Lundmark said Nokia is passing on the cost increases to all new contracts, but it is hard to do that for existing clients.

Nokia’s net sales grew 11% to 5.87 billion euros, beating estimates of 5.60 billion.

The company, which said in April it was pulling out of Russia following the Ukraine invasion, is continuing with its exit formalities.

“The clear majority of the exit will have been done by the end of the year. We are in discussions now with our customers there on how to do all the practical things but all our main offices in Russia have delivered notices to our people,” Lundmark said.

($1 = 0.9785 euros)

(Reporting by Supantha Mukherjee in Stockholm; Editing by Muralikumar Anantharaman, Uttaresh.V and Barbara Lewis)