Nokia, the world's number three telecom network equipment maker, has posted a surprise rise in quarterly profits helped by lucrative software sales and a refusal to chase after lower-margin contracts that had hurt profits previously.

The Finnish company, which in April proposed a €15.6 billion takeover of French rival Alcatel-Lucent, said operating profit at its network unit was €313m, or 11.5% of sales.

That was up from €281m a year earlier, and well above analysts' average forecast of a profit of €235m and a margin of 8.3%, according to a Reuters poll.

Network equipment sales were €2.73 billion, below a market consensus of €2.84 billion, as the company focused on more profitable contracts. This contrasted to earlier this year, when it signed several lower-margin deals to win business in China that cut into profits.

"Operative performance was really good, software sales were exceptionally high, which boosted margin," said Inderes analyst Mikael Rautanen, who has been recommending investors reduce holdings in the stock. He expected a positive market reaction.

Nokia's total non-IFRS group profit increased 51% from a year ago to €521m, topping the €334m forecast by analysts. The results were boosted by a €110m gain on the sale of a Chinese investment.

The company also said its strategic review of its HERE navigation business was now in an advanced stage. 

Last week, Reuters reported that the company was closing in on a deal to sell the maps operation to German carmakers for between €2.5bn and €3bn.