Nokia profits still dipping despite strong Lumia sales
On April 19, Nokia is expected to release their Q1 results. As a precursor, they put out some initial figures, showing that despite relatively strong sales, their profits continue to shrink. Nokia totaled €4.2 billion in phone sales, the bulk of which consisted of 71 million feature phones, Nokia's one-time bread and butter, bringing in around €2.3 billion. Smart devices earned them about €1.7 billion. And even though these seem like pretty big numbers, they are not enough to cover the cost of moving over to the Windows Phone platform in an attempt to gain a foothold in the smartphone arena. The expected result is a first quarter finish 3 percent below the break-even mark.
But this doesn't mean all doom and gloom for Nokia. Sales of Nokia's Lumia line of phones has been solid and continue to increase. The Lumia 900 has gotten off to a quick start and doesn't show any signs of slowing yet. And neither does Nokia CEO, Stephen Elop. He says that he and his crew continue "to increase the clock speed of the company" and that "the change is tangible." Considering that they scrapped their previous operating system in favor of Microsoft's just under a year ago, and that their first devices just hit the market last quarter, it's hard to call a 3 percent loss a failure.
Read the presser after the break.
Nokia lowers Devices & Services first quarter 2012 outlook and provides second quarter 2012 outlook
Difficult financial performance reflects company in transition
Positive early momentum in Lumia smartphone strategy
Stock exchange release
April 11, 2012 at 15.00 (CET+1)
Espoo, Finland - Nokia today provided preliminary information on certain aspects of its first quarter 2012 financial performance, including a lowered first quarter 2012 outlook for Devices & Services. During the first quarter 2012, multiple factors negatively affected Nokia's Devices & Services business to a greater extent than previously expected. These factors included:
- Competitive industry dynamics, which negatively affected net sales in the Mobile Phones and Smart Devices business units, particularly in India, the Middle East and Africa and China; and
- Gross margin declines, particularly in the Smart Devices business unit.
The impact of these factors on the non-IFRS Devices & Services operating margin in the first quarter 2012 was partially offset by a significant benefit from lower warranty costs.
Updated outlook for Devices & Services for the first quarter 2012:
Nokia currently estimates that its non-IFRS Devices & Services operating margin in the first quarter 2012 was approximately negative 3 percent, compared to the previously expected range of "around breakeven, ranging either above or below by approximately 2 percentage points" primarily due to the factors noted above.
Outlook for Devices & Services for the second quarter 2012:
Nokia expects its non-IFRS Devices & Services operating margin in the second quarter 2012 to be similar to or below the first quarter 2012 level. This outlook reflects that the first quarter 2012 benefit related to lower warranty costs is expected to be non-recurring, as well as expectations regarding a number of factors including:
- competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units;
- timing, ramp-up, and consumer demand related to new products; and
- the macroeconomic environment.
"Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition," said Stephen Elop, President and CEO of Nokia. "Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success. Our operator and distributor partners are providing solid support for Windows Phone as a third ecosystem, as evidenced most recently by the launch of the Lumia 900 by AT&T in the United States."
Additional commentary on the first quarter 2012 for Devices & Services and Nokia:
Nokia currently estimates that Devices & Services net sales in the first quarter 2012 were EUR 4.2 billion, comprised of Mobile Phones net sales of EUR 2.3 billion (71 million units), Smart Devices net sales of EUR 1.7 billion (12 million units), and Devices & Services Other net sales of EUR 0.2 billion. Based on the preliminary view, Nokia ended the first quarter 2012 around the high end of our normal 4 to 6 week channel inventory range, but on an absolute unit basis, channel inventories declined sequentially.
Nokia currently estimates that Devices & Services gross margin (including Devices & Services Other) for the first quarter 2012 was approximately 25%, with Mobile Phones gross margin of approximately 26% and Smart Devices gross margin of approximately 16%.
In the first quarter 2012, Nokia sold more than 2 million Lumia devices at an average selling price of approximately EUR 220 (reported within the Smart Devices business unit). Furthermore, Nokia has seen sequential growth in Lumia device activations every month since starting sales of Lumia devices in November 2011. Lumia has gained market share with both distribution partners and consumers. The Windows Phone ecosystem is also attracting developers and has expanded rapidly with more than 80,000 applications available.
Nokia currently estimates that at the end of the first quarter 2012, the company's gross cash and other liquid assets were approximately EUR 9.8 billion, and Nokia's net cash and other liquid assets were approximately EUR 4.9 billion. The sequential decline in net cash and other liquid assets was driven by Devices & Services, which experienced unfavorable and mostly non-recurring net working capital changes as well as operating losses. Nokia Siemens Networks contributed positively to Nokia's cash flow in the first quarter 2012 due to net working capital improvements. This was despite Nokia Siemens Networks having a preliminarily estimated non-IFRS operating margin of approximately negative 5 percent in the first quarter 2012, in line with the previously provided outlook.
Actions to Address Competitive Industry Dynamics Affecting Devices & Services
Nokia is quickly taking action. Nokia will continue to increase its focus on accelerating Lumia sales, as well as on lowering the company's cost structure, improving cash flow and maintaining a strong financial position.
- In the Smart Devices business unit, Nokia is increasing investments in Lumia to bring more products to more consumers in more markets.
- In the Mobile Phones business unit, Nokia is taking tactical pricing actions in the near term and plans to bring new products to market in the second quarter 2012.
- Nokia will accelerate planned cost reductions and will pursue additional significant structural actions if and when necessary.
"We are continuing to increase the clock speed of the company," said Stephen Elop, President and CEO of Nokia. "The change is tangible, and we are proud of the way Nokia employees are quickly responding to the needs of consumers and partners."
Nokia will provide full first quarter results and more details when it reports its first quarter 2012 results on April 19, 2012.
Nokia will be hosting a conference call today at 13:30 UK time (8:30 EST). The dial-in number for media (listen only - the question and answer session will be limited to financial analysts and investors only) is +1 706 634 5012. Conference ID: 67681834.
The dial-in number for financial analysts and investors is US: +1 888 636 1561. Conference ID: 67681834. UK: +44 1452 560 299. Conference ID: 67997871.
A replay of the call will be available soon after the call completion. The replay number is US: +1 800 585 8367. Conference ID: 67681834. UK: +44 1452 55 0000. Conference ID: 67997871.
About NokiaNokia is a global leader in mobile communications whose products have become an integral part of the lives of people around the world. Every day, more than 1.3 billion people use their Nokia to capture and share experiences, access information, find their way or simply to speak to one another. Nokia's technological and design innovations have made its brand one of the most recognized in the world. For more information, visit http://www.nokia.com/about-nokia
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