Nokia announced Q4 figures which showed it is not all plain sailing in the businesses which will be left when it completes the €5.44 billion sale of its Devices & Services unit to Microsoft, with Risto Siilasmaa (pictured), its chairman and interim CEO, warning that the coming quarter is also “seasonally weak for our continuing operations”.
“The fourth quarter of 2013 was a watershed moment in Nokia’s history. Having received overwhelmingly strong support from our shareholders at our extraordinary general meeting in November for the sale of our phones business to Microsoft, we are diligently working towards defining Nokia’s future direction,” Siilasmaa said.
With its Devices & Services unit shifted to “discontinued operations”, Nokia has also stopped giving some figures which it has issued previously – including handset volumes and average selling prices. The company may opt to give more detail in its conference call later today, but the information it does offer in its initial financial statement indicates that offloading the unit to Microsoft was a sensible move.
Most worrying for the IT giant buying the unit will be lower Smart Device sales, which indicate that Nokia’s Windows Phone-powered range is struggling to consistently gain momentum.
For its “continuing operations”, Nokia saw an operating profit of €274 million, down 17 per cent from €329 million, on net sales of €3.48 billion, down 21 per cent from €4.41 billion.
The lion’s share of this was attributable to its networks business NSN, where there was an operating profit of €243 million, down 4 per cent from €252 million, on sales of €3.1 billion, down 22 per cent from €3.99 billion.
The drop in sales was attributed to the divestment of non-core businesses and the exiting of certain customer contracts and countries. But even excluding these factors, NSN sales decreased by around 15 per cent, primarily due to reduced wireless infrastructure deployment activity, which impacted both its Global Services and Mobile Broadband units.
More positively, it saw a sequential increase in operating profit at NSN of 46 per cent, and a 20 per cent increase in sales.
Of its other units, mapping business Here saw an operating profit of €18 million, compared with a prior-year loss of €56 million, on sales of €254 million, down 9 per cent from €278 million. The company noted a growth in external net sales as growth to vehicle customers were partially offset by shrinkage in the personal navigation device market, but lower internal sales due to lower recognition of deferred revenue related to smartphone sales.
And its Advance Technologies business saw an operating profit of €65 million, down 35 per cent from €100 million, on sales of €121 million, down 20 per cent from €151 million.
Devices & Services update
With regard to its “discontinued operations” category, the company saw an operating loss of €198 million, down from a prior-year profit of €97 million, on net sales of €2.63 billion, down 29 per cent from €3.7 billion.
The sales slump was “primarily due to lower Mobile Phones net sales and, to a lesser extent, lower Smart Devices net sales”.
Its mass-market unit was affected by “competitive industry dynamics, including intense smartphone competition at increasingly lower price points and intense competition at the low end of our product portfolio”.
In addition, smartphone sales were affected by “competitive industry dynamics including the strong momentum of competing smartphone platforms, as well as our product transition from Symbian products to Lumia products”.
Worryingly for Microsoft, Nokia said that Smart Device net sales had declined sequentially from Q3 – with Q4 including the lucrative Christmas holiday sales period – due to “competitive industry dynamics including the strong momentum of competing smartphone problems”. Mobile Phone sales were “approximately flat” sequentially.
On a year-on-year basis, devices unit volumes declined due to lower Mobile Phones unit volumes, partially offset by higher Smart Devices unit volumes”. And while volumes also increased sequentially, growth in Mobile Phones was “partially offset by lower Smart Devices unit volumes”.
The sale of the business to Microsoft is expected to close in the current quarter, subject to remaining approvals and other customary closing conditions. It said that as of the end of 2013, it had received the majority of regulatory approvals for the deal.
Looking forward, it said it expects the full-year non-IFRS operating margin at NSN to be “towards the higher end of NSN’s targeted long-term non-IFRS operating margin range of 5 per cent to 10 per cent”. However, in Q1, it is expected to be “approximately 5 per cent plus or minus 4 percentage points”, reflecting seasonal weakness.
It also said it expects Here to “invest to capture longer term transformational growth opportunities”, which will impact its operating margin negatively. And Advanced Technologies net sales are expected to grow to a run-rate of approximately €600 million, “after Microsoft becomes a more significant intellectual property licensee in conjunction with the sale of substantially all of our Devices & Services business to Microsoft”.