Nokia set for strong year-end, following devices exit

Nokia set for strong year-end, following devices exit

24 JUL 2014

Nokia reported workmanlike numbers for the second quarter of 2014, as it transitioned to being an infrastructure-led business following the sale of the bulk of its loss-making handset business to Microsoft.

“This performance, along with the many conversations I have had with customers, partners, employees and others in my first quarter as CEO, gives me a high degree of confidence about our future,” Rajeev Suri, president and CEO of Nokia, said.

The company issued a positive outlook for the rest of the year, stating it expects full-year non-IFRS operating margin for the Networks business to be “at or slightly above” its target long-term range of 5 per cent to 10 per cent. This compares with an earlier guidance of “towards the higher end” of that range.

It also said it “expects Nokia Networks’ net sales to grow on a year-on-year basis in the second half of 2014.

For the second quarter, it reported a (non-IFRS) operating profit of €281 million for its biggest business unit, Nokia Networks, down 14 per cent year on year. Revenue in the unit was €2.57 billion, down 8 per cent.

While sales in the Mobile Broadband business group increased by 6 per cent to €1.36 billion, the performance of its Global Services unit was less impressive, with sales decreasing by 19 per cent to €1.19 billion.

The company noted that it had divested businesses that were not consistent with its strategic focus, and exited certain customer contracts and countries. For the Mobile Broadband unit, the company benefited from strong sales in both LTE and core networks, partially offset by lower sales of radio technologies other than LTE.

China was a standout market, with the company clearly boosted by China Mobile’s TD-LTE contract awards. Sales in the “Greater China” market grew by 18 per cent year-on-year in the quarter, compared to double digit falls in Europe, Middle East & Africa, North America and Latin America.

Excluding foreign currency fluctuations, divestments, and the market exits, net sales would have increased 1 per cent year-on-year, Nokia said.

The HERE location-based services unit broke-even on an operating level (non-IFRS), compared with a prior-year profit of €8 million, on net sales that were essentially flat at €232 million.

The company noted lower recognition of revenue related to smartphone sales by the former Nokia Devices & Services unit and reduced sales to personal navigation device customers, offset by Microsoft becoming a more significant licensee and sales to vehicle customers.

Factors affecting this unit included a change of cost of sales allocation following the sale of the handset business, and the lack of an earlier benefit related to a change of licence terms.

Nokia said that HERE “continued to focus on investing in longer-term transformational growth opportunities”, including the acquisitions of Medio and Desti.

The Nokia Technologies unit saw a non-IFRS operating profit of €96 million, up 7 per cent year-on-year, on revenue of €147 million, up 1 per cent.

The increase in sales was attributed to Microsoft being a more significant customer following the acquisition of Nokia’s handset unit, partially offset by lower levels of business activity for some licencees.

The prior-year period also included a one-off cost related to a patent sale transaction.

Nokia also today named Ramzi Haidamus as president of the Technologies unit and member of the group leadership team, effective 3 September. He has spent the bulk of his career at Dolby Laboratories.

The company also saw sales of €497 from its “discontinued operation” (the former Devices & Services unit), down from €2.58 billion. The unit was sold to Microsoft during the second quarter.

Operating profit for this unit was €3.08 billion, compared with a prior-year loss of €126 million, due to the gain of €3.2 billion resulting from the sale.

On a group level, the company reported a profit attributable to shareholders of €2.51 billion, compared with a prior year loss of €266 million, on revenue of €2.94 billion, down from €3.16 billion.

For 2014, the company benefitted from a €2.54 billion gain related to the discontinued Devices & Services business. In 2013, this unit contributed a loss of €168 million.

On an operating level, the company saw a profit of €284 million, compared with a prior-year profit of €12 million.

Following completion of the Microsoft deal, the company ended the period with net cash of €6.5 billion, compared with €2.1 billion at the end of Q1.

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