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Thursday October 18, 2007
Nokia reports Q3 2007 revenue up 28%
Q3 2007 FINANCIAL HIGHLIGHTS
As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of the former Nokia Networks and Siemens' carrier-related operations for fixed and mobile networks. Accordingly, the results of Nokia Group and Nokia Siemens Networks for the third quarter 2007 are not directly comparable to results for the third quarter 2006. Nokia's third quarter 2006 included the former Nokia Networks business group only.
Nokia Group
Nokia's third quarter 2007 net sales increased 28% to EUR 12.9 billion, compared with EUR 10.1 billion in the third quarter 2006. At constant currency, group net sales would have increased 32%.
Nokia's third quarter 2007 operating profit grew 69% to EUR 1.9 billion (including the EUR 26 million net negative impact of special items), compared with EUR 1.1 billion in the third quarter 2006 (including the negative impact of the EUR 128 million special item). The special items for the third quarter 2007 included a EUR 86 million restructuring charge and other one-time items in Nokia Siemens Networks (impacting Nokia Siemens Networks operating profit); and a EUR 60 million gain on sale of real estate (impacting Group Common Functions). Nokia's third quarter 2007 operating margin was 14.4% (10.9%), including the EUR 26 million net negative impact of the special items. Excluding the special items, Nokia's third quarter 2007 operating margin was 14.6% (12.2%).
Operating cash flow for the third quarter 2007 was EUR 2.0 billion, compared with EUR 1.0 billion for the third quarter 2006, and total combined cash and other liquid assets were EUR 9.2 billion, compared with EUR 8.5 billion at December 31, 2006. As of September 30, 2007, our net debt-equity ratio (gearing) was -51%, compared with -68% at December 31, 2006.
Mobile devices
In the third quarter 2007, the total mobile device volume achieved by our Mobile Phones, Multimedia and Enterprise Solutions business groups reached 111.7 million units, representing 26% year on year growth and an 11% sequential increase. The overall industry volume for the same period reached an estimated 286 million units, representing 17% year on year growth and a 9% sequential increase.
Converged device industry volumes increased to an estimated 31.7 million units, compared with 19.5 million units in the third quarter 2006. Nokia's own converged device volume rose to 16.0 million units, compared with 10.4 million units in the third quarter 2006. Nokia shipped well over 9 million Nokia Nseries and almost 2 million Nokia Eseries devices during the third quarter 2007.
The following chart sets out Nokia's 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 market share for the third quarter 2007 was 39%, compared with 36% in the third quarter 2006 and 38% in the second quarter 2007. Nokia's year on year market share increase was driven primarily by strong gains in Europe, Middle East & Africa, Asia-Pacific and China. Nokia's market share decreased year on year in Latin America and North America. Nokia had strong sequential market share gains in North America and to a lesser degree in China and Asia-Pacific. Nokia's market share decreased sequentially in Europe, Latin America and Middle East & Africa. Nokia's device volumes for the third quarter 2007 were somewhat constrained by component shortages, which continue to some degree in the fourth quarter 2007. In a strongly growing market, these component shortages are linked to the expected high demand for Nokia products and seasonal industry growth in the fourth quarter.
Nokia's average selling price in the third quarter 2007 was EUR 82, down from EUR 93 in the third quarter 2006 and down from EUR 90 in the second quarter 2007. The lower year on year and sequential ASP in the third quarter 2007 was primarily the result of a significantly higher proportion of entry level device sales, especially in the under EUR 30 category where industry growth has been very strong and where Nokia has the leading market share. Nokia's margins were strong in entry-level devices (including the under EUR 30 category) in the third quarter 2007; driven by Nokia's scale, low cost structure, world class distribution and leading brand.
Business Groups
Mobile Phones
Third quarter 2007 net sales grew 3% to EUR 6.1 billion, compared with EUR 5.9 billion in the third quarter 2006. Strong overall volume growth was partially offset by a significant ASP decline year on year, driven primarily by a higher proportion of entry-level sales. Net sales year on year growth was strongest in Asia-Pacific and Middle East & Africa, followed by China. Net sales were down significantly in North America, and to a lesser degree in Latin America and Europe year on year.
Mobile Phones operating profit grew 78% to EUR 1.4 billion, compared with EUR 779 million in the third quarter 2006, with an operating margin of 22.6% (13.1%). Third quarter 2006 reported operating profit included a charge of EUR 128 million primarily related to the restructuring of the CDMA business and associated asset write-downs. The 53% increase in operating profit for the third quarter 2007, excluding these charges, was driven primarily by an improved gross margin, compared to the third quarter 2006. The increase in Mobile Phones gross margin was primarily due to newer and more profitable products across its range.
Multimedia
Third quarter 2007 net sales increased 23% to EUR 2.6 billion, compared with EUR 2.1 billion in the third quarter 2006. Multimedia net sales were up in all regions, with growth strongest in Latin America and North America. However, Latin America and North America net sales continue to be relatively small. Multimedia net sales growth was driven by high volumes of Nokia Nseries multimedia computers, especially the Nokia N70, Nokia N73 and Nokia N95.
Multimedia third quarter operating profit grew 57% to EUR 575 million, compared with EUR 366 million in the third quarter 2006, with an operating margin of 22.3% (17.5%). Operating profit growth in the third quarter 2007 was driven by strong net sales growth and improved gross margins from a solid product portfolio, compared to the third quarter 2006.
Enterprise Solutions
Third quarter 2007 net sales increased 105% to EUR 526 million, compared with EUR 257 million in the third quarter 2006. Net sales were up significantly year on year in all regions except North America. Net sales were driven primarily by strong volume growth in Enterprise Solutions device business, especially the Nokia E65, compared to the third quarter 2006.
In the third quarter 2007, Enterprise Solutions operating profit was EUR 88 million, compared with an operating loss of EUR 65 million in the third quarter 2006, with an operating margin of 16.7%
(-25.3%). The significantly improved operating performance for the third quarter 2007 reflected strong net sales growth and effective cost control, compared to the third quarter 2006.
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