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Friday August 3, 2007
Nokia Q2 financials reflect its growing dominance
02 August 2007 – Nokia’s second quarter 2007 net sales increased 28% to EUR 12.6 billion, compared with EUR 9.8 billion in the second quarter 2006. At constant currency, group net sales would have increased 32%.
Nokia’s second quarter 2007 operating profit grew 57% to EUR 2.4 billion (including the net positive impact of EUR 970 million in special items), compared with EUR 1.5 billion in the second quarter 2006 (including the positive impact of the EUR 276 million special item). The special items for the second quarter 2007 included a EUR 1 883 million gain on the formation of Nokia Siemens Networks (impacting Group Common Functions operating result); EUR 905 million restructuring charges and other one-time items in Nokia Siemens Networks (impacting Nokia Siemens Networks operating profit); a EUR 15 million gain on sale of real estate (impacting Group Common Functions operating result); and EUR 23 million Nokia Siemens Networks related other costs (impacting Group Common Functions operating result). Nokia’s second quarter 2007 operating margin was 18.7% (15.3%), including the EUR 970 million net positive impact of the respective special items. Excluding the special items, Nokia’s second quarter 2007 operating margin was 11.0% (12.5%).
Operating cash flow for the second quarter 2007 was EUR 1.5 billion, compared with EUR 0.9 billion for the second quarter 2006, and total combined cash and other liquid assets were EUR 8.3 billion, compared with EUR 8.5 billion at December 31, 2006. As of June 30, 2007, our net debt-equity ratio (gearing) was -51%, compared with -68% at December 31, 2006.
Mobile devices
In the second quarter 2007, the total mobile device volume achieved by our Mobile Phones, Multimedia and Enterprise Solutions business groups reached 100.8 million units, representing 29% year on year growth and an 11% sequential increase. The overall industry volume for the same period reached an estimated 262 million units, representing 14% year on year growth and a 3% sequential increase.
Converged device industry volumes increased to an estimated 27.0 million units, compared with 18.9 million units in Q2 2006. Nokia’s own converged device volume rose to 13.9 million units, compared with 9.0 million units in Q2 2006. Nokia shipped over 9 million Nokia Nseries and almost 2 million Nokia Eseries devices during the second 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 second quarter 2007 was 38%, compared with 34% in the second quarter 2006 and 36% in the first quarter 2007. Nokia’s year on year market share increase was driven primarily by strong gains in Europe, Middle East & Africa, Asia-Pacific and Latin America. Nokia’s market share in China was at approximately the same level year on year. Nokia had strong sequential market share gains in Europe, Middle East & Africa, China, and Asia-Pacific and to a lesser degree in Latin America. Nokia’s market share was down both year on year and sequentially in North America. Nokia believes that its global market share in the second quarter 2007 was positively impacted by an enhanced overall product portfolio, supported by Nokia’s strengths of its world class logistics and brand. Nokia also believes that its market share in the second quarter 2007 was positively impacted by the clearing of certain competitors’ excess device inventory in the market that was carried over from the first quarter 2007.
Nokia’s average selling price in the second quarter 2007 was EUR 90, down from EUR 102 in the second quarter 2006 and up from EUR 89 in the first quarter 2007. The lower year on year ASP in the second quarter 2007 was primarily the result of a significantly higher proportion of entry level device sales, where the industry growth especially in the emerging markets has been strong. Sequentially, second quarter 2007 ASPs were positively impacted by a higher percentage of higher end device sales, which more than offset continued robust sales from the entry-level segment.
Business Groups
Mobile Phones: Second quarter 2007 net sales grew 1% to EUR 5.9 billion, compared with EUR 5.9 billion in the second quarter 2006, driven by strong industry volumes and our competitive product portfolio. Volume growth was partly offset by declining ASPs. Net sales increased in all regions year on year except North America and Latin America, with net sales growth strongest in Asia-Pacific and Middle East and Africa, followed by China and Europe.
Mobile Phones operating profit grew 28% to EUR 1.3 billion, compared with EUR 979 million in the second quarter 2006, with an operating margin of 21.1% (16.7%). The increase in operating profit for the second quarter 2007 was driven by an improved gross margin, compared to the second quarter 2006, primarily due to Mobile Phones newer and more profitable higher end products, like the Nokia 6300, Nokia 5200 and Nokia 5300.
Multimedia: Second quarter 2007 net sales increased 42% to EUR 2.7 billion, compared with EUR 1.9 billion in the second quarter 2006. Net sales increased year on year in all regions. Multimedia net sales more than doubled year on year in Latin America and North America. Multimedia net sales growth was driven by high volumes of Nokia Nseries multimedia computers, especially the Nokia N70, Nokia N73 and Nokia N95, combined with a stable ASP year on year.
Multimedia second quarter operating profit grew 85% to EUR 561 million, compared with EUR 304 million in the second quarter 2006, with an operating margin of 20.9% (16.1%). Operating profit growth in the second quarter 2007 was driven by strong net sales growth compared to the second quarter 2006.
Enterprise Solutions: Second quarter 2007 net sales increased 94% to EUR 549 million, compared with EUR 283 million in the second quarter 2006. Net sales were up significantly year on year in all regions except China and North America. Net sales were driven primarily by strong volume growth in Enterprise Solutions device business, especially the Nokia E65, compared to the second quarter 2006.
In the second quarter 2007, Enterprise Solutions operating profit was EUR 99 million, compared with an operating loss of EUR 63 million in the second quarter 2006, with an operating margin of 18.0%
(-22.3%). The significantly improved operating performance for the second quarter 2007 reflected strong net sales growth and effective cost control, compared to the second quarter 2006. Each of the Enterprise Solutions business units (devices, software, and security) was profitable in the second quarter 2007.
Nokia Siemens Networks:
The second quarter 2007 was the first quarter of operations for Nokia Siemens Networks.
Second quarter 2007 net sales were EUR 3.4 billion. Net sales were negatively impacted primarily by competition related issues as the price competition in the infrastructure market was unusually aggressive. Net sales were also impacted by challenges related to the start of operations, including delayed purchases by customers to a greater extent than expected, increased management focus on integration, and implementation of the previously announced compliance program, which also required certain management attention.
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