Nokia Q2 2009 net sales EUR 9.9 billion, non-IFRS EPS EUR 0.15 - Nokia

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OLLI-PEKKA KALLASVUO, NOKIA CEO:


"Nokia put in a solid performance in what was another tough quarter. We increased our share of the global mobile device market sequentially to an estimated 38% and grew our smartphone market share to an estimated 41%. As a result of strong operational execution, underlying operating margins improved sequentially in all segments. Competition remains intense, but demand in the overall mobile device market appears to be bottoming out. As before, we are continuing to tightly manage our operating expenses.
 
We are balancing short-term priorities with our longer-term growth ambitions as elements of the mobile handset, PC, internet and media industries converge to form a new industry. Consumers will increasingly expect devices and services designed as integrated solutions. To capture this opportunity we are accelerating our strategic transformation into a solutions company."
 
INDUSTRY AND NOKIA OUTLOOK


- Nokia expects industry mobile device volumes in the third quarter 2009 to be at approximately the same level or up slightly sequentially.


- Nokia expects its mobile device market share in the third quarter 2009 to be approximately at the same level sequentially.


- Nokia continues to expect 2009 industry mobile device volumes to decline approximately 10% from 2008 levels.


- Nokia now expects its market share in mobile devices to be approximately flat in 2009, compared with 2008. This is an update to Nokia's earlier target to increase its market share in mobile devices in 2009.


- Nokia now expects its non-IFRS operating margin in Devices & Services in the second half 2009 to be at approximately the same level as in the first half 2009. This is an update to Nokia's earlier target for the non-IFRS operating margin in Devices & Services to be in the teens for the second half 2009.


- Nokia and Nokia Siemens Networks continue to expect the mobile infrastructure and fixed infrastructure and related services market to decline approximately 10% in Euro terms in 2009, from 2008 levels.


- Nokia and Nokia Siemens Networks now expect Nokia Siemens Networks market share to decline moderately in 2009, compared to 2008, with a strong performance in its Services business unit expected to be offset by declines in certain product businesses. This is an update to Nokia and Nokia Siemens Networks earlier target for Nokia Siemens Networks market share to remain constant in 2009, compared to 2008.
 
SECOND QUARTER 2009 FINANCIAL HIGHLIGHTS


(Comparisons are given to the second quarter 2008, unless otherwise indicated.)
 
The non-IFRS results exclusions


Q2 2009 - EUR 348 million (net) consisting of:


- EUR 22 million of impairment of intangible assets in Devices & Services


- EUR 83 million restructuring charge in Devices & Services


- EUR 68 million gain on sale of security appliance business in Devices & Services


- EUR 69 million restructuring charge and other one-time items in Nokia Siemens Networks


- EUR 121 million of intangible assets amortization and other purchase price related items arising from the formation of Nokia Siemens Networks


- EUR 119 million of intangible assets amortization and other purchase price related items arising from the acquisition of NAVTEQ


- EUR 2 million of intangible assets amortization and other purchase price related items arising from the acquisition of OZ Communications in Devices & Services
 
Q1 2009 - EUR 459 million consisting of:


- EUR 34 million of impairment of intangible assets in Devices & Services


- EUR 59 million restructuring charge in Devices & Services


- EUR 123 million restructuring charge and other one-time items in Nokia Siemens Networks


- EUR 116 million of intangible assets amortization and other purchase price related items arising from the formation of Nokia Siemens Networks


- EUR 125 million of intangible assets amortization and other purchase price related items arising from the acquisition of NAVTEQ


- EUR 2 million of intangible assets amortization and other purchase price related items arising from the acquisition of OZ Communications in Devices & Services
 
Q2 2008 - EUR 580 million consisting of:


- EUR 259 million of charges related to closure of the Bochum site in Germany in Devices & Services


- EUR 201 million restructuring charge and other one-time items in Nokia Siemens Networks


- EUR 120 million of intangible assets amortization and other purchase price related items arising from the formation of Nokia Siemens Networks
 
Non-IFRS results exclude special items for all periods. In addition, non-IFRS results exclude intangible asset amortization, other purchase price accounting related items and inventory value adjustments arising from i) the formation of Nokia Siemens Networks and ii) all business acquisitions completed after June 30, 2008.
 
Nokia Group


Nokia's second quarter 2009 net sales decreased 25% to EUR 9.9 billion, compared with EUR 13.2 billion in the second quarter 2008. At constant currency, Group net sales would have decreased 24% year on year and increased 7% sequentially.
 
The following chart sets out the year on year and sequential growth rates in our net sales on a reported basis and at constant currency for the periods indicated.


Nokia's second quarter 2009 reported operating profit decreased 71% to EUR 427 million, compared with EUR 1.5 billion in the second quarter 2008. Nokia's second quarter 2009 non-IFRS operating profit decreased 62% to EUR 775 million, compared with EUR 2.1 billion in the second quarter 2008. Nokia's second quarter 2009 reported operating margin was 4.3% (11.2%). Nokia's second quarter 2009 non-IFRS operating margin was 7.8% (15.6%).
 
Operating cash flow for the second quarter 2009 was EUR 716 million. Operating cash flow for the second quarter 2008 was EUR 1.5 billion. Total cash and other liquid assets were EUR 7.0 billion at June 30, 2009, compared with EUR 8.0 billion at June 30, 2008. At June 30, 2009, Nokia's net debt-equity ratio (gearing) was -10%, compared with -47% at June 30, 2008.
 
Devices & Services


In the second quarter 2009, the total mobile device volumes of our Devices & Services group were 103.2 million units, representing a decline of 15% year on year and an 11% increase sequentially. The overall industry mobile device volumes for the same period were 268 million units based on Nokia's preliminary estimate, representing a 12% year on year decrease and a 5% sequential increase. The lower device volumes year on year for Nokia and the industry continued to be driven by the negative impact of the deteriorated global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. The sequential industry device volume increase primarily reflected seasonality in the second quarter. Nokia volumes also benefited sequentially from a more stable inventory situation in the operator and distributor channels. Nokia's mobile device market share was an estimated 38% in the second quarter 2009, down from 40% in the second quarter 2008 and up from 37% in the first quarter 2009.
 
Of the total industry mobile device volumes, converged mobile device industry volumes in the second quarter 2009 increased to 41.0 million units, based on Nokia's preliminary estimate, compared with an estimated 37.1 million units in the second quarter 2008, and 36.0 million units in the first quarter 2009. Our own converged mobile device volumes were 16.9 million units in the second quarter 2009, compared with 15.3 million units in the second quarter 2008 and 13.7 million units in the first quarter 2009. Nokia's share of the converged device market was an estimated 41% in the second quarter 2009, unchanged from 41% in the second quarter 2008 and up from 39% in the first quarter 2009. We shipped 4.6 million Nokia Nseries and 4.7 million Nokia Eseries devices during the second quarter 2009, up from the combined 8.2 million Nseries and Eseries devices we shipped in the first quarter 2009.
 
The following chart sets out our mobile device volumes for the periods indicated, as well as the year on year and sequential growth rates, by geographic area.


Based on our preliminary market estimate, Nokia's mobile device market share for the second quarter 2009 was 38%, compared with 40% in the second quarter 2008 and 37% in the first quarter 2009. Our year on year market share decline was driven primarily by lower market share in Latin America, Asia-Pacific and North America. This was partially offset by a slightly higher market share in Greater China, Europe and Middle East & Africa. Sequentially, our market share declined in North America, but this decline was more than offset by our increased market share in Middle East & Africa, Greater China, Europe, Asia-Pacific and Latin America.
 
Our mobile device average selling price (ASP) in the second quarter 2009 was EUR 62, down from EUR 74 in the second quarter 2008 and EUR 65 in the first quarter 2009. Both the year on year and sequential ASP declines were primarily due to general price pressure and a higher proportion of sales of lower priced products. Our second quarter 2009 ASP benefited from sales of new high-end products, compared to the first quarter 2009.
 
"Second quarter 2009 Devices & Services net sales declined 28% to EUR 6.6 billion, compared with EUR 9.1 billion in the second quarter 2008. Devices & Services net sales were down year on year in all geographic areas. At constant currency, Devices & Services net sales would have decreased 28%. The net sales decline resulted primarily from lower volumes, combined with the ASP decline, compared with the second quarter 2008. Of our total Devices & Services net sales, services contributed EUR 140 million in the second quarter 2009, representing 18% year on year growth and a 7% sequential decrease. Nokia completed the divestment of its security appliances business in April 2009 and accordingly services net sales for periods from April 1, 2009 are not directly comparable to services net sales of any prior periods," Nokia informs.
 
Devices & Services reported gross profit and non-IFRS gross profit decreased 32% to EUR 2.2 billion, compared with EUR 3.3 billion in the second quarter 2008, with a reported and non-IFRS gross margin of 34.0% (36.1%). The year on year gross margin decrease was primarily due to a higher proportion of sales of lower end, lower margin devices and a lower proportion of sales of new high-end, higher margin devices, as well as general price pressure.
 
Devices & Services reported operating profit decreased 51% to EUR 763 million, compared with EUR 1.6 billion in the second quarter 2008, with a reported operating margin of 11.6% (17.2%). Devices & Services non-IFRS operating profit decreased 56% to EUR 802 million, compared with EUR 1.8 billion in the second quarter 2008, with a non-IFRS operating margin of 12.2% (20.1%). The 56% year on year decrease in non-IFRS operating profit for the second quarter 2009 was due primarily to lower net sales compared with the second quarter 2008. The impact of lower net sales was somewhat mitigated by a reduction in our cost of sales and operating expenses during the second quarter 2009.
 
NAVTEQ


(Comparisons are given to the first quarter 2009)


Second quarter 2009 NAVTEQ net sales increased 11% sequentially to EUR 147 million, compared with EUR 132 million in the first quarter 2009, reflecting a slight pick-up in demand for auto navigation systems. NAVTEQ reported gross profit was EUR 126 million (EUR 116 million), with a gross margin of 85.7% (87.5%). Non-IFRS gross profit was EUR 127 million (EUR 117 million), with a non-IFRS gross margin of 85.8% (87.3%). NAVTEQ had a reported operating loss of EUR 100 million (EUR 120 million loss). The reported operating margin was -68.0% (-90.9%). NAVTEQ non-IFRS operating profit was EUR 19 million (EUR 5 million), with a non-IFRS operating margin of 12.8% (3.7%). 
 
Nokia Siemens Networks


Second quarter 2009 net sales decreased 21% to EUR 3.2 billion, compared with EUR 4.1 billion in the second quarter 2008, reflecting challenging market conditions and competitive factors. At constant currency, Nokia Siemens Networks net sales would have decreased 20%.


The following chart sets out Nokia Siemens Networks net sales for the periods indicated, as well as the year on year and sequential growth rates, by geographic area.


Nokia Siemens Networks reported gross profit decreased 25% to EUR 860 million, compared with EUR 1.1 billion in the second quarter 2008, with a gross margin of 26.9% (28.2%). Nokia Siemens Networks non-IFRS gross profit decreased 30% to EUR 897 million, compared with EUR 1.3 billion in the second quarter 2008, with a non-IFRS gross margin of 28.0% (31.5%). The lower year on year non-IFRS gross profit in the second quarter 2009 was due primarily to lower year on year net sales.
 
Nokia Siemens Networks had a second quarter 2009 reported operating loss of EUR 188 million compared with an operating loss of EUR 47 million in the second quarter 2008, with an operating margin of -5.9% (-1.2%). Nokia Siemens Networks non-IFRS operating profit was EUR 2 million in the second quarter 2009, compared with a non-IFRS operating profit of EUR 274 million in the second quarter 2008, with a non-IFRS operating margin of 0.1% (6.7%). The year on year decline in Nokia Siemens Networks non-IFRS operating profit primarily reflected lower net sales.
 
Q2 2009 OPERATING HIGHLIGHTS
 
Devices & Services


- Nokia continued to take action to adjust its business operations and cost base in accordance with market demand as well as seek savings in operational expenses, looking at all areas and activities across Devices & Services and global support functions:


- Nokia announced plans to streamline its Services organization, including measures that are targeted to open up greater opportunities for third party partner services. Approximately 450 employees globally are affected by the plans.


- Nokia announced plans to improve cost-efficiency in logistics, production management and production support operations, with approximately 170 employees globally affected.


- Nokia announced a targeted voluntary resignation package for up to 320 employees at its mobile device manufacturing facility in Salo, Finland. The scheme was fully subscribed.
 
- Nokia commenced shipments of the Nokia N97, its flagship smartphone and the first device to ship with the integrated Ovi Store, a one-stop-shop for applications and content for millions of Nokia device users and another critical element of our evolving Ovi internet services offering. Ovi Store launched in late May and by the end of the quarter it had attracted downloads from people in more than 180 countries.


- In the area of music, Nokia benefited from the continued strong performance by the Nokia 5800 XpressMusic, its first mass market touch product, which shipped 3.7 million units during the quarter. More than 6.8 million units have shipped since the device began shipping in late November last year. During the second quarter, Nokia further strengthened its offering of devices optimized for music, announcing the Nokia 5530 XpressMusic, a compact touch-screen device. Nokia also extended its Comes With Music service - an 'all-you-can-eat' music offer where users can download freely millions of tracks for a pre-defined period of time and keep those tracks once the period is up - to Brazil, Germany, Italy, Mexico, Sweden and Switzerland. Additionally, Nokia extended Nokia Music Store, with the chain of digital music stores now covering 21 countries in total.


- Nokia Messaging, Nokia's consumer email service, continued to gain traction among operators with six new agreements announced in the second quarter. By the end of the quarter, Nokia Messaging was available to Nokia users in more than 40 countries. Additionally, by the end of the quarter, approximately 600 000 people had activated an Ovi Mail account. Ovi Mail is an email solution developed especially for consumers in emerging markets.


- Nokia started shipments of the Nokia E75, its flagship email device, and the Nokia N86 8MP, its flagship imaging device. Nokia also announced the Nokia E72, its latest full QWERTY smartphone and the successor to the highly popular Nokia E71. Cumulative shipments of the Nokia E71 reached 5 million during the quarter.


- Nokia made Nokia Life Tools commercially available across India. Nokia Life Tools is an innovative offering of agriculture information, education and entertainment services targeted at non-urban consumers in emerging markets. Nokia Life Tools is available on the new Nokia 2330 classic and the Nokia 2323 classic, and will also be made available on other enabled devices.


- Nokia announced the Nokia 6216 classic, its first SIM-based Near Field Communication (NFC) device which enables operators to build NFC services on to the SIM card.


- Nokia commenced shipments of its first 3G mobile device in Korea. The 6210s is a competitively priced smartphone with a slide form factor and is available through local operator KTF.


- Nokia expanded its network of research laboratories with the opening of Nokia Research Center, Berkeley, in California in the United States.


- Nokia and Intel Corporation announced that they will work together to develop a new class of Intel Architecture-based mobile computing device and chipset architectures that will combine the performance of powerful computers with high-bandwidth mobile broadband communications and ubiquitous Internet connectivity. The two companies share a vision of a new class of standards-based mobile computing platforms that provide an always-on, always-connected experience and offer the performance to deliver PC-like Internet experiences across a new class of services.
 
NAVTEQ


- NAVTEQ announced the availability of dynamic content delivery for HD Radio(TM) systems in North America, accelerating the delivery of content including traffic, weather and fuel prices.


- NAVTEQ launched NAVTEQ LocationPoint(TM), a location-based advertising service for mobile devices, in several European countries.


- NAVTEQ announced the availability of Motorway Junction Objects, which enables navigation systems to display full 3D animation of complex junctions, in Australia with expansion planned to include the United States and Europe.


- NAVTEQ announced a contract extension with MSN® Direct for NAVTEQ Traffic(TM), supporting Microsoft 's Live Search Maps web-based service and as part of the MSN Direct connected services bundle.


- NAVTEQ announced that it has signed an agreement with Samsung Electronics providing access to all countries in the NAVTEQ database as well as NAVTEQ's Visual Content, Speed Limits, Extended Lanes and NAVTEQ Discover Cities(TM).
 
Nokia Siemens Networks


- In June, Nokia Siemens Networks reached an agreement to acquire CDMA and LTE assets from Nortel in a USD 650 million transaction that remains subject to the approvals of the relevant bankruptcy courts in North America as well as customary closing conditions.


- Nokia Siemens Networks strengthened its capital structure with the completion of a EUR 2 billion syndicated loan agreement with a group of 21 international banks, in a transaction that was over-subscribed. Nokia Siemens Networks also concluded an agreement with the European Investment Bank for a EUR 250 million loan for the development of its multimode Radio Access network technology.


- Nokia Siemens Networks was awarded a EUR 1.1 billion, five-year managed services deal by Oi, a major Brazilian operator and one of the largest in Latin America. By the terms of the contract Nokia Siemens Networks will be the sole provider of operations and maintenance for all of Oi's Internal Plant Operations across 17 Brazilian states.


- Momentum in the services business continued with key services-led customer wins with Telenor in Pakistan, DIGI Telecommunications in Malaysia and a turnkey security solution for MTS in Russia that will ensure safe internet browsing on GSM and 3G networks.


- Nokia Siemens Networks continued to facilitate its customers' development of mobile broadband internet with significant wins including a network modernization deal with M1 in Singapore, the development of an HSPA+ capable network for Elisa in Finland, the roll-out of Ireland's National Broadband Scheme using Wireless Broadband with 3 and a successful trial of HSPA+ in a live 3G network with Zain Saudi Arabia.


- Time Warner Cable selected Nokia Siemens Networks to supply and build a fully integrated, 3GPP and PacketCable 2.0 compliant IMS (IP Multimedia Subsystem) network, which will be the basis for providing next generation consumer applications that will combine existing voice, video and data services.


Source finchannel.com


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