ESPOO, FINLAND--(Marketwire - Jul 19, 2012) -
Nokia Corporation
Interim report
July 19, 2012 at 13.00 (CET+1)
This is a summary of the second quarter 2012 interim report published today.
The
complete second quarter 2012 interim report with tables is available at
http://www.results.nokia.com/results/Nokia_results2012Q2e.pdf. Investors
should
not rely on summaries of our interim reports only, but should review the
complete interim reports with tables.
FINANCIAL AND OPERATING HIGHLIGHTS
Nokia net sales in Q2 2012 were EUR 7.5 billion, up from EUR 7.4 billion in Q1
2012
- Nokia Devices & Services Q2 net sales decreased 5% quarter-on-quarter.
- Lumia Q2 volumes increased quarter-on-quarter to 4 million units.
- Mobile Phones Q2 volumes increased quarter-on-quarter and year-on-year to 73
million units.
Nokia non-IFRS EPS in Q2 2012 of EUR -0.08, level with Q1 2012; reported EPS
EUR
-0.38
- Reported EPS adversely affected by non-cash valuation allowances related to
deferred tax assets* of EUR 800 million, inventory-related allowances, and
restructuring related charges.
- Devices & Services Q2 non-IFRS operating margin negative 9.1%, adversely
affected by EUR 220 million of inventory-related allowances for our Lumia,
Symbian and MeeGo devices. Smart Devices Q2 gross margin and contribution
adversely affected by the inventory-related allowances. Q3 expected to be a
challenging quarter in Smart Devices due to product transitions.
- Nokia Siemens Networks returned to non-IFRS operating profitability in Q2;
restructuring progressing well and company seeing continued progress against
new
strategy that focuses on key markets and product segments.
Both gross and net cash higher year-on-year
- Nokia ended Q2 with gross cash of EUR 9.4 billion and net cash of EUR 4.2
billion.
- Net cash lower quarter-on-quarter, after EUR 742 million annual dividend
payment to shareholders.
- Nokia Q2 net cash from operating activities of positive EUR 102 million,
including receipt of EUR 400 million pre-payments from existing IPR licenses.
*The majority of Devices & Services' Finnish deferred tax assets are
indefinite
in nature and remain available for Nokia to use against any potential future
Finnish tax liabilities.
Commenting on the Q2 results, Stephen Elop, Nokia CEO, said:
"Nokia is taking action to manage through this transition period. While Q2 was
a
difficult quarter, Nokia employees are demonstrating their determination to
strengthen our competitiveness, improve our operating model and carefully
manage
our financial resources.
We shipped four million Lumia Smartphones in Q2, and we plan to provide
updates
to current Lumia products over time, well beyond the launch of Windows Phone
8.
We believe the Windows Phone 8 launch will be an important catalyst for Lumia.
During the quarter, we demonstrated stability in our feature phone business,
and
enhanced our competitiveness with the introduction of our first full touch
Asha
devices. In Location & Commerce, our business with auto-industry customers
continued to grow, and we made good progress establishing our location-based
platform with businesses like Yahoo!, Flickr, and Bing. We continued to
strengthen our patent portfolio and filed more patents in the first half of
2012 than any previous six month period since 2007. And, we are encouraged
that
Nokia Siemens Networks returned to underlying operating profitability through
strong execution of its focused strategy.
We are executing with urgency on our restructuring program. We are disposing
of
non-core assets like Vertu. We are taking the necessary steps to restructure
the
operations of the company, which included the announcement of a new program on
June 14. Faster than anticipated, we have already negotiated the closure of
the
Ulm, Germany R&D site, and the negotiations about the planned closure of our
factory in Salo, Finland are proceeding in a collaborative spirit.
We held our net cash resources at a steady level after adjusting for the
annual
dividend payment to our shareholders. While Q3 will remain difficult, it is a
critical priority to return our Devices & Services business to positive
operating cash flow as quickly as possible."
SUMMARY FINANCIAL INFORMATION
+--------------------+----------------------------------------------------+
| Reported and Non-IFRS second quarter 2012 results1,2,3 |
+--------------------+---------+---------+--------+---------+-------------+
| | | | YoY | | QoQ |
| EUR million | Q2/2012 | Q2/2011 | Change | Q1/2012 | Change |
+--------------------+---------+---------+--------+---------+-------------+
| Nokia | | | | | |
+--------------------+---------+---------+--------+---------+-------------+
| Net sales | 7 542 | 9 275 | -19% | 7 354 | 3% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | -826 | -487 | | -1 340 | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | | | | | |
| (non-IFRS) | -327 | 391 | | -260 | |
+--------------------+---------+---------+--------+---------+-------------+
| EPS, EUR diluted | -0.38 | -0.10 | | -0.25 | |
+--------------------+---------+---------+--------+---------+-------------+
| EPS, EUR diluted | | | | | |
| (non-IFRS)4 | -0.08 | 0.06 | | -0.08 | |
+--------------------+---------+---------+--------+---------+-------------+
| Net cash from | | | | | |
| operating | | | | | |
| activities | 102 | -176 | | -590 | |
+--------------------+---------+---------+--------+---------+-------------+
| Net cash and | | | | | |
| other liquid | | | | | |
| assets5 | 4 197 | 3 891 | 8% | 4 872 | -14% |
+--------------------+---------+---------+--------+---------+-------------+
| Devices & | | | | | |
| Services6 | | | | | |
+--------------------+---------+---------+--------+---------+-------------+
| Net sales | 4 023 | 5 467 | -26% | 4 246 | -5% |
+--------------------+---------+---------+--------+---------+-------------+
| Smart Devices | | | | | |
| net sales | 1 541 | 2 351 | -34% | 1 704 | -10% |
+--------------------+---------+---------+--------+---------+-------------+
| Mobile Phones | | | | | |
| net sales | 2 291 | 2 568 | -11% | 2 311 | -1% |
+--------------------+---------+---------+--------+---------+-------------+
| Mobile device | | | | | |
| volume | | | | | |
| (mn units) | 83.7 | 88.5 | -5% | 82.7 | 1% |
+--------------------+---------+---------+--------+---------+-------------+
| Smart Devices | | | | | |
| volume | | | | | |
| (mn units) | 10.2 | 16.7 | -39% | 11.9 | -14% |
+--------------------+---------+---------+--------+---------+-------------+
| Mobile Phones | | | | | |
| volume | | | | | |
| (mn units) | 73.5 | 71.8 | 2% | 70.8 | 4% |
+--------------------+---------+---------+--------+---------+-------------+
| Mobile device | | | | | |
| ASP7 | 48 | 62 | -23% | 51 | -6% |
+--------------------+---------+---------+--------+---------+-------------+
| Smart Devices | | | | | |
| ASP7 | 151 | 141 | 7% | 143 | 6% |
+--------------------+---------+---------+--------+---------+-------------+
| Mobile Phones | | | | | |
| ASP7 | 31 | 36 | -14% | 33 | -6% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| profit | -474 | -216 | | -219 | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| profit | | | | | |
| (non-IFRS) | -365 | 400 | | -127 | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| margin % | -11.8% | -4.0% | | -5.2% | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating margin % | | | | | |
| (non-IFRS) | -9.1% | 7.3% | | -3.0% | |
+--------------------+---------+---------+--------+---------+-------------+
| Location & | | | | | |
| Commerce6 | | | | | |
+--------------------+---------+---------+--------+---------+-------------+
| Net sales | 283 | 271 | 4% | 277 | 2% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | -95 | -104 | -9% | -94 | 1% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | | | | | |
| (non-IFRS) | 41 | 7 | 486% | 36 | 14% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| margin % | -33.6% | -38.4% | | -33.9% | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| margin % | | | | | |
| (non-IFRS) | 14.5% | 2.6% | | 12.9% | |
+--------------------+---------+---------+--------+---------+-------------+
| Nokia Siemens | | | | | |
| Networks6,8 | | | | | |
+--------------------+---------+---------+--------+---------+-------------+
| Net sales | 3 343 | 3 642 | -8% | 2 947 | 13% |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | -227 | -111 | | -1 005 | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating profit | | | | | |
| (non-IFRS) | 27 | 40 | -33% | -147 | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| margin % | -6.8% | -3.0% | | -34.1% | |
+--------------------+---------+---------+--------+---------+-------------+
| Operating | | | | | |
| margin % | | | | | |
| (non-IFRS) | 0.8% | 1.1% | | -5.0% | |
+--------------------+---------+---------+--------+---------+-------------+
Note 1 relating to January-June 2012 results: Nokia reported net sales were
EUR
14 896 million and reported EPS(diluted) was EUR -0.63 for the period from
January 1 to June 30, 2012. Further information about the results for the
period
from January 1 to June 30, 2012 can be found on pages 19, 26, 27 and 30 of the
complete Q2 2012 interim report with tables.
Note 2 relating to non-IFRS results: Non-IFRS results exclude special items
for
all periods. In addition, non-IFRS results exclude intangible asset
amortization, other purchase price accounting related items and inventory
value
adjustments arising from (i) the formation of Nokia Siemens Networks and (ii)
all business acquisitions completed after June 30, 2008. Nokia believes that
our non-IFRS results provide meaningful supplemental information to both
management and investors regarding Nokia's underlying performance by excluding
the above-described items that may not be indicative of Nokia's business
operating results. These non-IFRS financial measures should not be viewed in
isolation or as substitutes to the equivalent IFRS measure(s), but should be
used in conjunction with the most directly comparable IFRS measure(s) in the
reported results. See note 3 below for information about the exclusions from
our
non-IFRS results. More information, including a reconciliation of our Q2 2012
and Q2 2011 non-IFRS results to our reported results, can be found in our
complete Q2 2012 interim report with tables on pages 21-25. A reconciliation
of
our Q1 2012 non-IFRS results to our reported results can be found in our
complete Q1 interim report with tables on pages 18 and 20-23 published on
April
19, 2012.
Note 3 relating to non-IFRS exclusions:
Q2 2012 - EUR 499 million consisting of:
- EUR 190 million restructuring charge and other associated items in Nokia
Siemens Networks, including EUR 70 million of charges related to country and
contract exits based on new strategy that focuses on key markets and product
segments.
- EUR 10 million restructuring charge in Location & Commerce
- EUR 80 million restructuring charge and associated impairments EUR 28
million
in Devices & Services
- EUR 64 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 126 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally
in
Devices & Services
Q2 2012 taxes - EUR 800 million valuation allowances for Devices & Services
deferred tax assets adversely affecting Nokia taxes
Q1 2012 - EUR 1 080 million consisting of:
- EUR 772 million restructuring charge and other associated items in Nokia
Siemens Networks
- EUR 10 million restructuring charge in Location & Commerce
- EUR 91 million restructuring charge in Devices & Services
- EUR 86 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 120 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally
in
Devices & Services
Q1 2012 taxes - EUR 135 million valuation allowances for Nokia Siemens
Networks
deferred tax assets adversely affecting Nokia taxes.
Q2 2011 - EUR 878 million consisting of:
- EUR 68 million restructuring charge and other associated items in Nokia
Siemens Networks
- EUR 297 million restructuring charge in Devices & Services
- EUR 275 million accrued Accenture deal consideration in Devices & Services
- EUR 41 million impairment of shares in an associated company in Devices &
Services
- EUR 83 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 111 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 3 million of intangible assets amortization and other purchase price
related items arising from the acquisition of OZ Communications, Novarra and
Motally in Devices & Services
Note 4 relating to non-IFRS Nokia EPS: Nokia taxes continued to be adversely
affected by Nokia Siemens Networks taxes as no tax benefits are recognized for
certain Nokia Siemens Networks deferred tax items. In Q2 2012, this impact was
smaller due to improved profitability and a favorable profit mix in Nokia
Siemens Networks taxes offset by an unfavorable profit mix in Devices &
Services
taxes. If Nokia's earlier estimated long-term tax rate of 26% had been
applied,
non-IFRS Nokia EPS would have been approximately 0.6 Euro cent higher in Q2
2012.
Note 5 relating to Nokia net cash and other liquid assets: Calculated as total
cash and other liquid assets less interest-bearing liabilities. For selected
information on Nokia Group interest-bearing liabilities, please see the table
on
page 32 of the complete Q2 2012 interim report with tables
Note 6 relating to operational and reporting structure: We adopted our current
operational structure during 2011 and have three businesses: Devices &
Services,
Location & Commerce and Nokia Siemens Networks and four operating and
reportable
segments: Smart Devices and Mobile Phones within Devices & Services, Location
&
Commerce and Nokia Siemens Networks. Smart Devices focuses on smartphones and
Mobile Phones focuses on mass market feature phones. Devices & Services also
contains Devices & Services Other which includes net sales of our luxury phone
business Vertu, spare parts and related cost of sales and operating expenses,
as
well as intellectual property related royalty income and common research and
development expenses. Location & Commerce focuses on the development of
location-based services and local commerce. Nokia Siemens Networks is one of
the
leading global providers of telecommunications infrastructure hardware,
software
and services.
Note 7 relating to average selling prices (ASP): Mobile device ASP represents
total Devices & Services net sales (Smart Devices net sales, Mobile Phones net
sales, and Devices & Services Other net sales) divided by total Devices &
Services volumes. Devices & Services Other net sales includes net sales of
Nokia's luxury phone business Vertu and spare parts, as well as intellectual
property royalty income. Smart Devices ASP represents Smart Devices net sales
divided by Smart Devices volumes. Mobile Phones ASP represents Mobile Phones
net
sales divided by Mobile Phones volumes.
Note 8 relating to Nokia Siemens Networks: Nokia Siemens Networks completed
the
acquisition of Motorola Solutions' networks assets on April 30, 2011.
Accordingly, the results of Nokia Siemens Networks for the second quarter 2012
are not directly comparable to its results for the second quarter 2011.
NOKIA OUTLOOK
- Nokia expects its non-IFRS Devices & Services operating margin in the third
quarter 2012 to be similar to the second quarter 2012 level of negative 9.1%,
plus or minus four percentage points. This outlook is based on our
expectations
regarding a number of factors, including:
- competitive industry dynamics continuing to negatively affect the Smart
Devices and Mobile Phones business units;
- consumer demand particularly related to our current Lumia products; and
- the macroeconomic environment.
- Nokia expects the third quarter 2012 to be a challenging quarter in Smart
Devices due to product transitions.
- Nokia continues to target to reduce its Devices & Services non-IFRS
operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
- Nokia and Nokia Siemens Networks expect Nokia Siemens Networks non-IFRS
operating margin in the third quarter 2012 to be above the second quarter 2012
level of 0.8%.
- Nokia Siemens Networks continues to target to reduce its non-IFRS annualized
operating expenses and production overheads by EUR 1 billion by the end of
2013, compared to the end of 2011.
SECOND QUARTER 2012 FINANCIAL AND OPERATING DISCUSSION
NOKIA GROUP
We adopted our current operational structure during 2011 and have three
businesses: Devices & Services, Location & Commerce and Nokia Siemens Networks
and four operating and reportable segments: Smart Devices and Mobile Phones
within Devices & Services, Location & Commerce and Nokia Siemens Networks.
Smart Devices focuses on smartphones and Mobile Phones focuses on mass market
feature phones. Devices & Services also contains Devices & Services Other
which
includes net sales of our luxury phone business Vertu, spare parts and related
cost of sales and operating expenses, as well as intellectual property related
royalty income and common research and development expenses. Location &
Commerce
focuses on the development of location-based services and local commerce.
Nokia
Siemens Networks is one of the leading global providers of telecommunications
infrastructure hardware, software and services.
The following discussion includes non-IFRS results information. Non-IFRS
results
exclude special items for all periods. In addition, non-IFRS results exclude
intangible asset amortization, other purchase price accounting related items
and
inventory value adjustments arising from (i) the formation of Nokia Siemens
Networks and (ii) all business acquisitions completed after June 30, 2008.
The following table sets forth the year-on-year and sequential growth rates in
our net sales on a reported basis and at constant currency for the periods
indicated.
+--------------------------------------------------+
| SECOND QUARTER 2012 NET SALES, |
| REPORTED & CONSTANT CURRENCY1 |
+--------------------------------+--------+--------+
| | YoY | QoQ |
| | Change | Change |
+--------------------------------+--------+--------+
| Group net sales - | -19% | 3% |
| reported | | |
+--------------------------------+--------+--------+
| Group net sales - | -20% | 2% |
| constant currency1 | | |
+--------------------------------+--------+--------+
| Devices & Services | | |
| net sales - reported | -26% | -5% |
+--------------------------------+--------+--------+
| Devices & Services | | |
| net sales - constant currency1 | -27% | -6% |
+--------------------------------+--------+--------+
| Nokia Siemens Networks | | |
| net sales - reported | -8% | 13% |
+--------------------------------+--------+--------+
| Nokia Siemens Networks | | |
| net sales - constant currency1 | -11% | 14% |
+--------------------------------+--------+--------+
Note 1: Change in net sales at constant currency excludes the impact of
changes
in exchange rates in comparison to the Euro, our reporting currency.
The following table sets forth Nokia Group's reported cash flow for the
periods
indicated and financial position at the end of the periods indicated, as well
as
the year-on-year and sequential growth rates.
+-------------------------------------------------------------------------+
| NOKIA GROUP CASH FLOW |
| AND FINANCIAL POSITION |
+----------------------+--------+--------+----------+---------+-----------+
| EUR million |Q2/2012 |Q2/2011 |YoY Change| Q1/2012 |QoQ Change |
+----------------------+--------+--------+----------+---------+-----------+
| Net cash from | 102| -176| | -590 | |
| operating activities | | | | | |
+----------------------+--------+--------+----------+---------+-----------+
| Total cash and | 9 418| 9 358| 1% | 9 793 | -4% |
| other liquid assets | | | | | |
+----------------------+--------+--------+----------+---------+-----------+
| Net cash and | 4 19 | 3 891| 8% | 4 872 | -14% |
| other liquid assets1 | | | | | |
+----------------------+--------+--------+----------+---------+-----------+
Note 1: Total cash and other liquid assets minus interest-bearing liabilities.
Year-on-year, net cash and other liquid assets increased by EUR 306 million in
the second quarter 2012, primarily due to cash flows related to IPR, including
a
EUR 400 million receipt of pre-payments from existing IPR licenses, the
receipt
of quarterly platform support payments from Microsoft (which commenced in the
fourth quarter 2011), a EUR 500 million equity investment in Nokia Siemens
Networks by Siemens (received in the third quarter of 2011) and positive
overall
net cash from operating activities, partially offset by payment of the annual
dividend totaling EUR 742 million, capital expenditures and cash outflows
related to restructuring.
Sequentially, net cash and other liquid assets decreased by EUR 675 million in
the second quarter 2012, primarily due to the payment of the annual dividend
totaling EUR 742 million, Devices & Services operating losses, cash outflows
related to restructuring and capital expenditures, partially offset by cash
flows related to IPR (including a EUR 400 million receipt of pre-payments from
existing IPR licenses), a positive contribution from Nokia Siemens Networks
and
the receipt of a USD 250 million (approximately EUR 196 million) quarterly
platform support payment from Microsoft.
In the second quarter 2012, Nokia Siemens Networks' contribution to net cash
from operating activities was approximately EUR 160 million. This was
primarily
due to working capital improvements. In the second quarter 2012, Nokia Siemens
Networks' working capital performance improved sequentially by approximately
EUR
135 million, primarily related to improved accounts payable management and
accounts receivables collection, offset by cash outflows related to
restructuring.
Our agreement with Microsoft includes platform support payments from Microsoft
to us as well as software royalty payments from us to Microsoft. In the
second
quarter 2012, we received a quarterly platform support payment of USD 250
million (approximately EUR 196 million). Under the terms of the agreement
governing the platform support payments, the amount of each quarterly platform
support payment is USD 250 million. We have a competitive software royalty
structure, which includes annual minimum software royalty commitments. Minimum
software royalty commitments are paid quarterly. Over the life of the
agreement,
both the platform support payments and the minimum software royalty
commitments
are expected to measure in the billions of US dollars. The total amount of the
platform support payments is expected to slightly exceed the total amount of
the
minimum software royalty commitments. In accordance with the contract terms,
the
platform support payments and annual minimum software royalty commitment
payments continue for a corresponding period of time.
During the second quarter 2012, based on a combination of factors, including
the
decline in our market capitalization, credit rating downgrades as well as our
operating results, we concluded that there were sufficient indicators to
require
Nokia Group to perform an interim goodwill impairment analysis as of June
30, 2012. The methodology and models used for our interim impairment
assessment
are consistent with those used in the annual assessment performed during the
fourth quarter of 2011 and the inputs to the model, such as cash flows,
discount
rates and growth rates, have been updated to reflect our most recent
projections. Given that the indicators were primarily related to operating
factors within Smart Devices, Mobile Phones and Location & Commerce, no
interim
analysis for Nokia Siemens Networks was conducted.
As of June 30, 2012, goodwill of EUR 874 million, EUR 535 million, EUR 3 389
million and EUR 190 million was allocated to Smart Devices, Mobile Phones,
Location & Commerce and Nokia Siemens Networks, respectively. There was no
goodwill impairment charge recorded during the second quarter 2012 as a result
of the goodwill impairment analysis, however a change in any of the key
assumptions used in measuring the recoverable value of our Location & Commerce
business could have resulted in additional goodwill impairment. While we
believe
the estimated recoverable values are reasonable, actual performance in the
short-term and long-term could be materially different from our forecasts,
which
could impact future estimates of recoverable value of our reporting units and
may result in impairment charges.
In the second quarter 2012, Nokia recognized EUR 800 million in valuation
allowances related to its Finnish deferred tax assets in accordance with
accounting standards. During the second quarter 2012, Nokia's Finnish taxable
results over the past three years moved from a cumulative profit position to a
cumulative loss position. When an entity has a history of recent losses in a
taxable jurisdiction, the entity recognizes a deferred tax asset arising from
unused losses or tax credits only to the extent the entity has sufficient
taxable temporary differences or there is convincing other evidence that
sufficient tax profit will be available against which the unused tax losses or
unused tax credits can be utilized in the future. Positive evidence of future
taxable profits may be assigned lesser weight in assessing the appropriateness
of recording a deferred tax asset when there is other unfavorable evidence
such
as cumulative losses, which are considered strong evidence that future taxable
profits may not be available. Regardless of the accounting treatment for
reporting purposes, the majority of Nokia's Finnish deferred tax assets are
indefinite in nature and available against future Finnish tax liabilities.
Thus,
if Nokia is able to reestablish a pattern of sufficient tax profitability in
Finland, the allowances may be reversed.
Going forward on a non-IFRS basis, until a pattern of tax profitability is
reestablished in Finland, Nokia expects to record quarterly tax expense of
approximately EUR 50 million related to its Devices & Services business and
approximately EUR 50 million related to its Nokia Siemens Networks business.
Nokia expects to continue to record taxes related to its Location & Commerce
business at a 26% rate.
DEVICES & SERVICES
The following table sets forth a summary of the results for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates.
+-----------------------------------------------------------------------+
|DEVICES & SERVICES RESULTS SUMMARY |
+-------------------------+-------+-------+----------+-------+----------+
| |Q2/2012|Q2/2011|YoY Change|Q1/2012|QoQ Change|
+-------------------------+-------+-------+----------+-------+----------+
|Net sales (EUR million)1 | 4 023| 5 467| -26%| 4 246| -5%|
+-------------------------+-------+-------+----------+-------+----------+
|Mobile device volume | | | | | |
|(million units) | 83.7| 88.5| -5%| 82.7| 1%|
+-------------------------+-------+-------+----------+-------+----------+
|Mobile device ASP (EUR) | 48| 62| -23%| 51| -6%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS gross margin (%)| 18.1%| 30.5%| | 24.4%| |
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|expenses (EUR million) | 1 090| 1 264| -14%| 1 123| -3%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|margin (%) | -9.1%| 7.3%| | -3.0%| |
+-------------------------+-------+-------+----------+-------+----------+
Note 1: Includes IPR royalty income recognized in Devices & Services Other net
sales.
The year-on-year and sequential changes in our Devices & Services net sales,
volumes, average selling prices and gross margin are discussed below under our
Smart Devices and Mobile Phones business units. On a year-on-year basis, the
decline in Devices & Services Other net sales was primarily due to the
recognition in the second quarter 2011 of approximately EUR 430 million of IPR
royalty income from new contracts related to the second quarter 2011 and
earlier
periods. We estimate that our current annual IPR royalty income run-rate is
approximately EUR 0.5 billion.
At the end of the second quarter 2012, our overall channel inventory was
approximately on the same level as at the end of the first quarter 2012. We
ended the second 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 slightly sequentially.
Net Sales and Volumes by Geographic Area
The following table sets forth the net sales for our Devices & Services
business
for the periods indicated, as well as the year-on-year and sequential growth
rates, by geographic area. IPR royalty income is allocated to the geographic
areas contained in this chart.
+-------------------------------------------------------------------------+
| DEVICES & SERVICES NET SALES |
| BY GEOGRAPHIC AREA |
+----------------------+---------+---------+------------+---------+-------+
| | | | | | QoQ |
| EUR million |Q2/2012 |Q2/2011 | YoY Change | Q1/2012 | Change|
+----------------------+---------+---------+------------+---------+-------+
| Europe | 1 096 | 1 666 | -34% | 1 352 | -19 |
+----------------------+---------+---------+------------+---------+-------+
| Middle East & Africa | 663 | 988 | -33% | 737 | -10%|
+----------------------+---------+---------+------------+---------+-------+
| Greater China | 542 | 913 | -41% | 577 | -6%|
+----------------------+---------+---------+------------+---------+-------+
| Asia-Pacific | 948 | 1 085 | -13% | 945 | 0%|
+----------------------+---------+---------+------------+---------+-------+
| North America | 128 | 88 | 45% | 93 | 38%|
+----------------------+---------+---------+------------+---------+-------+
| Latin America | 646 | 727 | -11% | 542 | 19%|
+----------------------+---------+---------+------------+---------+-------+
| Total | 4023 | 5467 | -26% | 4246 | -5%|
+----------------------+---------+---------+------------+---------+-------+
The following table sets forth the mobile device volumes for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates, by geographic area.
+-------------------------------------------------------------------------+
| DEVICES & SERVICES MOBILE DEVICE VOLUMES |
| BY GEOGRAPHIC AREA |
+----------------------+---------+---------+------------+---------+-------+
| | | | | | QoQ |
| million units | Q2/2012 | Q2/2011 | YoY Change | Q1/2012 | Change|
+----------------------+---------+---------+------------+---------+-------+
| Europe | 15.3 | 18.4 | -17% | 15.8 | -3% |
+----------------------+---------+---------+------------+---------+-------+
| Middle East & Africa | 19.4 | 20.5 | -5% | 21.4 | -9% |
+----------------------+---------+---------+------------+---------+-------+
| Greater China | 7.9 | 11.3 | -30% | 9.2 | -14% |
+----------------------+---------+---------+------------+---------+-------+
| Asia-Pacific | 28.6 | 24.5 | 17% | 26.1 | 10% |
+----------------------+---------+---------+------------+---------+-------+
| North America | 0.6 | 1.5 | -60% | 0.6 | 0% |
+----------------------+---------+---------+------------+---------+-------+
| Latin America | 11.9 | 12.3 | -3% | 9.6 | 24% |
+----------------------+---------+---------+------------+---------+-------+
| Total | 83.7 | 88.5 | -5% | 82.7 | 1% |
+----------------------+---------+---------+------------+---------+-------+
Operating Expenses
Devices & Services non-IFRS operating expenses decreased 14% year-on-year and
3% sequentially in the second quarter 2012. On a year-on-year basis, operating
expenses related to Mobile Phones increased 7%, whereas operating expenses
related to Smart Devices decreased 28%, in the second quarter 2012. On a
sequential basis, operating expenses related to Mobile Phones and Smart
Devices
decreased by 5% and 3%, respectively, in the second quarter 2012. In addition
to
the factors described below, the year-on-year changes resulted from the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices. This resulted in higher and lower relative allocations to Mobile
Phones
and Smart Devices, respectively.
Devices & Services non-IFRS research and development expenses decreased 19%
year-on-year in the second quarter 2012. On a sequential basis, Devices &
Services non-IFRS research and development expenses decreased 7% in the second
quarter 2012. Both the year-on-year and sequential declines were primarily due
to a reduction in Symbian and MeeGo related costs as well as cost controls.
Devices & Services non-IFRS sales and marketing expenses decreased 6%
year-on-year in the second quarter 2012. On a sequential basis, Devices &
Services
non-IFRS sales and marketing expenses increased 8% in the second quarter 2012.
Year-on-year, marketing expenses declined primarily due to lower marketing
expenditure on Symbian as well as cost controls, partially offset by higher
marketing expenditure on Lumia and feature phone devices. Sequentially,
marketing expenses increased primarily due to higher expenditure on Lumia
devices as well as expanded regional distribution of Lumia devices, partially
offset by cost controls.
Devices & Services non-IFRS administrative and general expenses decreased 30%
year-on-year in the second quarter 2012 primarily related to cost savings in
support functions, particularly in IT and real estate management and shared
function cost categorization. On a sequential basis, Devices & Services non-
IFRS
administrative and general expenses decreased 35% in the second quarter 2012
primarily due to shared function cost categorization and cost savings in
support
functions.
In the second quarter 2012, Devices & Services non-IFRS other income and
expense
had a negative year-on-year and positive sequential impact on profitability.
On
a reported basis, other income and expense was significantly adversely
affected
in the second quarter 2012 primarily as a result of restructuring-related
expenses discussed below, which were recognized in Devices & Services Other.
Operating Margin
The lower year-on-year and sequential Devices & Services non-IFRS operating
margin in the second quarter 2012 was primarily due to lower net sales and
gross
margins, which was adversely affected by EUR 220 million of inventory-related
allowances in Smart Devices, partially offset by lower operating expenses.
Cost Reduction Activities and Planned Operational Adjustments
Nokia continues to target to reduce its Devices & Services non-IFRS operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
In connection with the implementation of our strategy announced in February
2011, we have announced and made a number of changes to our operations. In the
second quarter of 2012, we recognized restructuring charges and other
associated
items of EUR 108 million related to our restructuring activities in Devices &
Services. By the end of the second quarter 2012, we had recorded cumulative
Devices & Services restructuring charges of approximately EUR 1.0 billion. In
total, we expect cumulative Devices & Services restructuring charges of
approximately EUR 1.8 billion before the end of 2013. By the end of the
second
quarter 2012, Devices & Services had cumulative restructuring related cash
outflows of approximately EUR 600 million. From the third quarter 2012
onwards,
we expect Devices & Services restructuring related cash outflows to be
approximately EUR 500 million in 2012 and approximately EUR 500 million in
2013. Of the total expected charges relating to restructuring activities of
EUR
1.8 billion, we expect Devices & Services non-cash charges to be approximately
EUR 200 million.
SMART DEVICES
The following table sets forth a summary of the results for our Smart Devices
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
+-----------------------------------------------------------------------+
|SMART DEVICES |
|RESULTS SUMMARY |
+-------------------------+-------+-------+----------+-------+----------+
| |Q2/2012|Q2/2011|YoY Change|Q1/2012|QoQ Change|
+-------------------------+-------+-------+----------+-------+----------+
|Net sales (EUR millions)1| 1 541| 2 351| -34%| 1 704| -10%|
+-------------------------+-------+-------+----------+-------+----------+
|Smart Devices volume | | | | | |
|(million units) | 10.2| 16.7| -39%| 11.9| -14%|
+-------------------------+-------+-------+----------+-------+----------+
|Smart Devices ASP (EUR) | 151| 141| 7%| 143| 6%|
+-------------------------+-------+-------+----------+-------+----------+
|Gross margin (%) | 1.7%| 23.0%| | 15.6%| |
+-------------------------+-------+-------+----------+-------+----------+
|Operating expenses | | | | | |
|(EUR millions)2 | 540| 752| -28%| 556| -3%|
+-------------------------+-------+-------+----------+-------+----------+
|Contribution margin (%)2 | -32.9%| -9.2%| | -18.3%| |
+-------------------------+-------+-------+----------+-------+----------+
Note 1: Does not include IPR royalty income. IPR royalty income is recognized
in
Devices & Services Other net sales.
Note 2: The year-on-year decrease in operating expenses resulted from the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices, resulting in lower relative allocations to Smart Devices in the first
and second quarters 2012.
Net Sales
On a year-on-year basis, the decline in our Smart Devices net sales in the
second quarter 2012 was primarily due to lower Symbian volumes, partially
offset
by sales of Nokia Lumia devices. In addition, Symbian ASPs decreased on a
year-on-year basis.
On a sequential basis, the decline in our Smart Devices net sales in the
second
quarter 2012 was primarily due to lower Symbian volumes, partially offset by
higher volumes of Nokia Lumia devices. In addition, Symbian ASPs increased and
Lumia ASPs decreased on a sequential basis.
Volume
The year-on-year decline in our Smart Devices volumes in the second quarter
2012 continued to be driven by the strong momentum of competing smartphone
platforms relative to our Symbian devices, partially offset by sales of 4
million Lumia devices. All regions showed a significant year-on-year decline
in
the second quarter 2012 except for North America, where the sharp decline in
sales of Symbian devices was more than offset by sales of our Lumia devices
including the Lumia 900 with AT&T and the Lumia 710 with T-Mobile.
On a sequential basis, the decline in our Smart Devices volumes in the second
quarter 2012 was primarily driven by lower Symbian volumes in all regions.
This
more than offset the sequential increase in Nokia Lumia device volumes, which
was driven by sales of the Lumia 610 and the Lumia 900 as well as expanded
regional distribution, particularly into China and Latin America.
Average Selling Price
The year-on-year increase in our Smart Devices ASP in the second quarter 2012
was primarily due to a positive mix shift towards sales of Nokia Lumia devices
which carry a higher ASP than Symbian devices, as well as a positive impact
related to deferred revenue on services sold in combination with our devices.
Sequentially, the increase in our Smart Devices ASP in the second quarter 2012
was primarily due to a positive mix shift towards sales of Nokia Lumia
devices.
The ASP of our Lumia devices in the second quarter 2012 was EUR 186, compared
to
EUR 220 in the first quarter 2012.
Gross Margin
The significant year-on-year and sequential decline in our Smart Devices gross
margin in the second quarter 2012 was primarily due to the recognition of
approximately EUR 220 million of allowances related to excess component
inventory, future purchase commitments and an inventory revaluation related to
our Lumia, Symbian and MeeGo devices. Increases or decreases to Smart Devices
allowances may be required in the future depending on several factors,
including
future sales performance.
In addition, the year-on-year gross margin decline in the second quarter 2012
was due to price reductions across our Symbian portfolio as well as higher
fixed
costs per unit, such as certain royalties, because of lower sales volumes.
MOBILE PHONES
The following table sets forth a summary of the results for our Mobile Phones
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
+-----------------------------------------------------------------------+
|MOBILE PHONES |
|RESULTS SUMMARY |
+-------------------------+-------+-------+----------+-------+----------+
| |Q2/2012|Q2/2011|YoY Change|Q1/2012|QoQ Change|
+-------------------------+-------+-------+----------+-------+----------+
|Net sales (EUR millions)1| 2 291| 2 568| -11%| 2 311| -1%|
+-------------------------+-------+-------+----------+-------+----------+
|Mobile Phones volume | | | | | |
|(million units) | 73.5| 71.8| 2%| 70.8| 4%|
+-------------------------+-------+-------+----------+-------+----------+
|Mobile Phones ASP (EUR) | 31| 36| -14%| 33| -6%|
+-------------------------+-------+-------+----------+-------+----------+
|Gross margin (%) | 24.1%| 24.7%| | 25.9%| |
+-------------------------+-------+-------+----------+-------+----------+
|Operating expenses | | | | | |
|(EUR million)2 | 450| 420| 7%| 472| -5%|
+-------------------------+-------+-------+----------+-------+----------+
|Contribution margin (%)2 | 4.3%| 8.3%| | 4.6%| |
+-------------------------+-------+-------+----------+-------+----------+
Note 1: Does not include IPR royalty income. IPR royalty income is recognized
in
Devices & Services Other net sales.
Note 2: The year-on-year increase in operating expenses resulted from the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices, resulting in higher relative allocations to Mobile Phones in the
first
and second quarters 2012.
Net Sales
Both on a year-on-year and sequential basis, our Mobile Phones net sales in
the
second quarter 2012 decreased due to the lower ASP.
Volume
On a year-on-year basis, the increase in our Mobile Phones volumes in the
second
quarter 2012 was primarily due to the continued ramp up of our latest
generation
of feature phones, such as the Nokia 100 and 101, which we sell to our
customers
for below EUR 50. However, volumes of our higher priced feature phone
portfolio
were adversely affected by competition from more affordable smartphones and
from
competitors with broader portfolios of feature phones with more
smartphone-like experiences, such as full touch devices.
On a sequential basis, the increase in our Mobile Phones volumes in the second
quarter 2012 was also primarily due to the continued ramp up of our latest
generation of feature phones which we sell to our customers for below EUR 50.
Volumes of our higher priced feature phone portfolio stayed at approximately
the
same level sequentially.
Average Selling Price
The year-on-year decline in our Mobile Phones ASP in the second quarter 2012
was
primarily due to an increased proportion of sales of lower priced devices and
price erosion.
On a sequential basis, the decline in our Mobile Phones ASP in the second
quarter 2012 was also primarily due to an increased proportion of sales of
lower
priced devices. Sequentially, however, the prices of our feature phones
remained
approximately at the same level.
Gross Margin
The year-on-year decline in our Mobile Phones gross margin in the second
quarter
2012 was primarily due to a negative product mix shift towards lower gross
margin feature phones, partially offset by greater cost erosion than price
erosion.
The sequential decrease in our Mobile Phones gross margin in the second
quarter
2012 was primarily due to higher warranty expense, partially offset by greater
cost erosion than price erosion. In the first quarter 2012, our gross margin
was
positively impacted by a warranty provision release benefit as our claims
rates
and repair costs declined.
LOCATION & COMMERCE
The following table sets forth a summary of the results for Location &
Commerce
for the periods indicated, as well as the year-on-year and sequential growth
rates.
+-----------------------------------------------------------------------+
|LOCATION & COMMERCE |
|RESULTS SUMMARY |
+-------------------------+-------+-------+----------+-------+----------+
| |Q2/2012|Q2/2011|YoY Change|Q1/2012|QoQ Change|
+-------------------------+-------+-------+----------+-------+----------+
|Net sales (EUR millions) | 283| 271| 4%| 277| 2%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS gross margin (%)| 77.4%| 81.6%| | 77.7%| |
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|expenses (EUR millions) | 185| 215| -14%| 174| 6%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|margin (%) | 14.5%| 2.6%| | 12.9%| |
+-------------------------+-------+-------+----------+-------+----------+
Net Sales
The year-on-year increase in Location & Commerce net sales in the second
quarter
2012 was primarily due to the higher recognition of deferred revenue related
to
sales of map platform licenses to Nokia's Smart Devices business unit and
higher
sales of map content licenses to vehicle customers due to higher consumer
uptake
of vehicle navigation systems. This was partially offset by a negative sales
adjustment related to historical license fees in the normal course of business
for a particular customer.
Sequentially, the increase in Location & Commerce net sales in the second
quarter 2012 was primarily due to higher sales of map content licenses to
vehicle customers due to higher vehicle sales as well as higher map update
sales. This was partially offset by a negative sales adjustment related to
historical license fees in the normal course of business for a particular
customer.
Gross Margin
On a year-on-year basis, the decline in Location & Commerce non-IFRS gross
margin in the second quarter 2012 was primarily due to a negative sales
adjustment related to historical license fees in the normal course of business
for a particular customer as well as a shift of research and development
operating expenses to cost of sales as a result of the divestment of the media
advertising business.
On a sequential basis, Location & Commerce non-IFRS gross margin in the second
quarter 2012 was approximately flat. This was primarily due to an improved
revenue mix from higher margin vehicle map license sales, offset by a negative
sales adjustment related to historical license fees in the normal course of
business for a particular customer.
Operating Expenses
Location & Commerce non-IFRS research and development expenses decreased 14%
year-on-year in the second quarter 2012 primarily due to cost reductions as
well
as a shift in expenses from research and development to costs of sales related
to the divestment of the media advertising business. Location & Commerce
non-IFRS research and development expenses increased 10% sequentially in the
second
quarter 2012 primarily due to project spending relating to software
development
and map creation.
Location & Commerce non-IFRS sales and marketing expenses decreased 28%
year-on-year and 7% sequentially in the second quarter 2012. On a year-on-year
basis,
the decrease was primarily due to cost reduction actions.
Location & Commerce non-IFRS administrative and general expenses increased 17%
year-on-year and 5% sequentially in the second quarter 2012. On a
year-on-year basis, the increase was primarily due to the higher use of
services provided by
shared support functions.
Location & Commerce non-IFRS other income and expense for the second quarter
2012 was income of EUR 7 million, compared to zero in the second quarter 2011
and an expense of EUR 6 million in the first quarter 2012. On both a
year-on-year and sequential basis, this was primarily due to changes in
provisions.
Operating Margin
The higher year-on-year Location & Commerce non-IFRS operating margin in the
second quarter 2012 was primarily due to lower operating expenses and higher
net
sales, partially offset by lower gross margin.
The sequential increase in Location & Commerce non-IFRS operating margin in
the
second quarter 2012 was primarily due to higher net sales.
NOKIA SIEMENS NETWORKS
Nokia Siemens Networks completed the acquisition of Motorola Solutions'
networks
assets on April 30, 2011. Accordingly, the results of Nokia Siemens Networks
for
the second quarter 2012 are not directly comparable to its results for the
second quarter 2011.
The following table sets forth a summary of the results for Nokia Siemens
Networks for the periods indicated, as well as the year-on-year and sequential
growth rates.
+-----------------------------------------------------------------------+
|NOKIA SIEMENS NETWORKS |
|RESULTS SUMMARY |
+-------------------------+-------+-------+----------+-------+----------+
| |Q2/2012|Q2/2011|YoY Change|Q1/2012|QoQ Change|
+-------------------------+-------+-------+----------+-------+----------+
|Net sales (EUR millions) | 3 343| 3 642| -8%| 2 947| 13%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS gross margin (%)| 26.6%| 26.6%| | 26.6%| |
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|expenses (EUR millions) | 836| 931| -10%| 937| -11%|
+-------------------------+-------+-------+----------+-------+----------+
|Non-IFRS operating | | | | | |
|margin (%) | 0.8%| 1.1%| | -5.0%| |
+-------------------------+-------+-------+----------+-------+----------+
Net Sales
The following table sets forth Nokia Siemens Networks net sales for the
periods
indicated, as well as the year-on-year and sequential growth rates, by
geographic area.
+-------------------------------------------------------------------------+
| NOKIA SIEMENS NETWORKS |
| NET SALES BY GEOGRAPHIC AREA |
+----------------------+---------+---------+------------+---------+-------+
| | | | | | QoQ |
| EUR millions | Q2/2012 | Q2/2011 | YoY Change | Q1/2012 | Change|
+----------------------+---------+---------+------------+---------+-------+
| Europe | 990 | 1 122 | -12% | 930 | 6% |
+----------------------+---------+---------+------------+---------+-------+
| Middle East & Africa | 304 | 389 | -22% | 270 | 13% |
+----------------------+---------+---------+------------+---------+-------+
| Greater China | 340 | 403 | -16% | 209 | 63% |
+----------------------+---------+---------+------------+---------+-------+
| Asia-Pacific | 1 028 | 973 | 6% | 877 | 17% |
+----------------------+---------+---------+------------+---------+-------+
| North America | 300 | 311 | -4% | 283 | 6% |
+----------------------+---------+---------+------------+---------+-------+
| Latin America | 381 | 444 | -14% | 378 | 1% |
+----------------------+---------+---------+------------+---------+-------+
| Total | 3 343 | 3 642 | -8% | 2 947 | 13% |
+----------------------+---------+---------+------------+---------+-------+
The year-on-year decrease in Nokia Siemens Networks' net sales in the second
quarter 2012 was primarily due to Nokia Siemens Networks' strategy to focus on
mobile broadband, customer experience management and services. Business areas
not consistent with the new strategy are in the process of being divested or
managed for value. On a year-on-year basis, Nokia Siemens Networks
experienced
a decline in sales of infrastructure equipment as well as a slower operator
investment environment in certain markets, including Europe. This was
partially
offset by a slight increase in sales of services.
The sequential increase in Nokia Siemens Networks' net sales in the second
quarter 2012 was primarily due to industry seasonality, partially offset by
Nokia Siemens Networks' strategy to focus on mobile broadband, customer
experience management and services. On a sequential basis, Nokia Siemens
Networks experienced similar rates of growth in infrastructure equipment and
services.
Gross Margin
On a year-on-year basis Nokia Siemens Networks' non-IFRS gross margin in the
second quarter 2012 was flat, primarily due to efforts to structurally improve
the overall gross margin profile of Nokia Siemens Networks' portfolio of
contracts, with improved pricing processes and a focus on priority markets
including Japan, Korea, and North America, offset by negative mix shift
towards
lower gross margin services revenue.
On a sequential basis Nokia Siemens Networks' non-IFRS gross margin in the
second quarter 2012 was flat, primarily due to similar rates of growth in
infrastructure equipment and services, combined with higher services gross
margins and lower infrastructure equipment gross margins.
Operating Expenses
By the end of the second quarter 2012, Nokia Siemens Networks reduced its
number
of employees by approximately 10 000 compared to the end of 2011, resulting in
significant structural savings in non-IFRS research and development, sales and
marketing, and administrative and general expenses.
Nokia Siemens Networks' non-IFRS research and development expenses decreased
6%
year-on-year in the second quarter 2012 primarily due to structural cost
savings. This was partially offset by the addition of the research and
development operations related to the acquired Motorola Solutions networks
assets as well as investments in strategic initiatives. On a sequential basis,
Nokia Siemens Networks' non-IFRS research and development expenses decreased
10% in the second quarter 2012 due to structural cost savings.
Year-on-year, Nokia Siemens Networks' non-IFRS sales and marketing expenses
decreased 14% in the second quarter 2012 primarily due to the lower net sales
and structural cost savings. This was partially offset by the addition of the
sales and marketing operations related to the acquired Motorola Solutions
networks assets. On a sequential basis, Nokia Siemens Networks non-IFRS sales
and marketing expenses decreased 5% in the second quarter 2012 primarily due
to
structural cost savings, partially offset by the higher net sales.
Nokia Siemens Networks' non-IFRS administrative and general expenses decreased
20% year-on-year in the second quarter 2012 primarily due to structural cost
savings. This was partially offset by the addition of Motorola Solutions'
network assets. On a sequential basis, Nokia Siemens Networks non-IFRS
administrative and general expenses decreased 24% in the second quarter 2012
primarily due to structural cost savings.
Nokia Siemens Networks' non-IFRS other income and expense for the second
quarter
2012 was an expense of EUR 25 million, compared to income of EUR 1 million in
the second quarter 2011 and income of EUR 6 million in the first quarter 2012.
On both a year-on-year and sequential basis, this was primarily due to changes
in provisions, asset retirements, and divestments.
Operating Margin
The lower year-on-year Nokia Siemens Networks non-IFRS operating margin in the
second quarter 2012 was primarily due to lower net sales, partially offset by
lower operating expenses.
The sequential increase in Nokia Siemens Networks' non-IFRS operating margin
in
the second quarter 2012 was primarily due to higher net sales combined with
lower operating expenses.
Strategy Update and Global Restructuring Program
On November 23, 2011 Nokia Siemens Networks announced its strategy to focus on
mobile broadband and services and the launch of an extensive global
restructuring program.
Nokia Siemens Networks continues to target to reduce its non-IFRS annualized
operating expenses and production overheads by EUR 1 billion by the end of
2013, compared to the end of 2011. While these savings are expected to come
largely from organizational streamlining, the company will also target areas
such as real estate, information technology, product and service procurement
costs, overall general and administrative expenses, and a significant
reduction
of suppliers in order to further lower costs and improve quality.
In the second quarter of 2012, Nokia Siemens Networks recognized restructuring
charges and other associated items of EUR 190 million related to this
restructuring program, resulting in cumulative charges of EUR 1 billion. In
total, Nokia Siemens Networks expects cumulative restructuring charges of
approximately EUR 1.2 billion related to this restructuring program before the
end of 2012. By the end of the second quarter 2012, Nokia Siemens Networks had
cumulative restructuring related cash outflows of approximately EUR 250
million
related to this restructuring program. From the third quarter 2012 onwards,
Nokia Siemens Networks expects restructuring-related cash outflows to be
approximately EUR 350 million in 2012, approximately EUR 400 million in 2013,
and approximately EUR 200 million in 2014 related to this restructuring
program.
Cash preservation is a clear priority at Nokia Siemens Networks, and the
company
intends to be self-funding in all aspects of its operations. Nokia Siemens
Networks' restructuring program, combined with the company's focus on
improving
its financial performance, is designed to enable the company to end 2012 with
higher net cash than at the end of 2011.
SECOND QUARTER 2012 OPERATING HIGHLIGHTS
NOKIA OPERATING HIGHLIGHTS
- In April, Nokia started development of a new manufacturing facility in
Vietnam
to serve the feature phone market.
- In June, Nokia outlined a range of planned actions aimed at sharpening its
strategy, improving its operating model and returning the company to
profitable
growth. The planned measures include targeted investments in key growth areas,
operational changes and a significantly increased cost reduction target.
Specifically, planned measures include:
- Reductions within certain research and development projects, resulting in
the
planned closure of its facilities in Ulm, Germany and Burnaby, Canada;
- Consolidation of certain manufacturing operations, resulting in the planned
closure of its manufacturing facility in Salo, Finland. Research and
Development
efforts in Salo to continue;
- Focusing of marketing and sales activities, including prioritizing key
markets;
- Streamlining of IT, corporate and support functions; and
- Reductions related to non-core assets, including possible divestments.
As a result of the planned changes, Nokia plans to reduce up to 10 000
positions
globally by the end of 2013.
- In June, Nokia announced plans to acquire world-class imaging specialists as
well as all technologies and intellectual property from Scalado AB.
- In June, Nokia announced plans to divest Vertu, its luxury mobile phones
business to EQT VI, a European private equity firm.
- During the quarter, Nokia announced a number of changes to its senior
leadership. In April, Nokia announced that Colin Giles, executive vice
president
of sales, is stepping down from the Nokia Leadership Team. In May, Esko Aho,
executive vice president, Corporate Relations and Responsibility, was
appointed
to the role of Senior Fellow at the Mossavar-Rahmani Center for Business and
Government at Harvard Kennedy School. Aho is continuing to represent Nokia and
drive the company's governmental affairs as a consultative partner, although
he
will step down from the Nokia Leadership team, effective August 31, 2012 out
of
respect for the demands of the Harvard appointment. In June, Nokia appointed
Juha Putkiranta as executive vice president of Operations; Timo Toikkanen as
executive vice president of Mobile Phones; Chris Weber as executive vice
president of Sales and Marketing; Tuula Rytila as senior vice president of
Marketing and chief marketing officer; and Susan Sheehan as senior vice
president of Communications. Putkiranta, Toikkanen and Weber joined the Nokia
Leadership Team effective July 1, 2012. Jerri DeVard has stepped down as
executive vice president of Marketing and chief marketing officer; Mary
McDowell
has stepped down as executive vice president of Mobile Phones; and Niklas
Savander has stepped down as executive vice president of Markets.
DEVICES & SERVICES OPERATING HIGHLIGHTS
SMART DEVICES
- Nokia has continued to expand the breadth and depth of its Lumia range of
Windows Phone-based smartphones since their debut in November 2011. Consumers
in
more than 50 markets around the world can now purchase a Lumia smartphone. Key
highlights in the growth of Lumia in the second quarter included:
- In April, the Nokia Lumia 610, Nokia's most affordable Lumia smartphone to
date, went on sale, starting in Asia and expanding to other regions later in
the
quarter. The Lumia 610 is introducing the Windows Phone platform to a new
generation of smartphone users, particularly in key China markets.
- In April, the Nokia Lumia 900 went on sale in the United States exclusively
through AT&T. Lumia 900 sales exceeded our expectations from the start at AT&T
and was consistently among the top selling smartphones on Amazon in the United
States. The device is our first LTE phone and has won praise for its design.
According to a survey of US customers conducted for Nokia by the independent
research company Nielsen and published in July, 95% of Lumia 900 owners are
willing to recommend the device to others. Nokia also launched a non-LTE
version
of the Lumia 900 in other parts of the world during the second quarter.
- In June, the number of applications in the Windows Phone Marketplace
surpassed
100 000, up from more than 50 000 at the start of 2012.
- In May, the Nokia 808 PureView, the first smartphone to feature Nokia
PureView
imaging technologies, went on sale. The device brings together high resolution
sensors, exclusive Carl Zeiss optics and Nokia-developed algorithms, which
will
support new high-end imaging experiences for future Nokia products.
MOBILE PHONES
- Nokia has continued to expand the breadth and depth of its Asha family of
mobile phones since their debut in late 2011. The range, now ten products
strong, is available across more than 130 markets and receiving among the
highest consumer satisfaction scores of any Nokia products. Key highlights in
the growth of Asha in the second quarter included:
- In April, Nokia made available Nokia Browser 2.0, a major update for Nokia
Series 40 devices. The new version reduces data consumption by up to 85%,
meaning that consumers can enjoy faster and cheaper internet access.
- In May, Nokia launched the Nokia 110 and Nokia 112, both running the new
Nokia
Browser.
- In June, Nokia launched its first full touch Asha feature phones. The three
new phone models -- the Nokia Asha 305, Nokia Asha 306 and Nokia Asha 311 --
offer
a fully re-designed touch user interface. The Asha 311 has a capacitive
touchscreen device and is powered by a 1GHz processor to provide a great
internet experience.
- In June, Nokia made Mail for Exchange available for free in the Nokia Store
for the Asha 302 and Asha 303.
LOCATION & COMMERCE OPERATING HIGHLIGHTS
Nokia's Location & Commerce business continued to strengthen its location-
based
offerings during the second quarter:
- The Nokia Location Platform continued to be adopted by more partners,
including Microsoft's Bing Maps, which is also now using Location & Commerce
traffic information and geocoding algorithms, and Ford, whose research
organization is using the platform to advance innovation for smart and
connected
vehicles. Nokia announced that the Nokia Location Platform will be a central
part of the Windows Phone 8 experience. As such, Windows Phone 8 partners and
developers will be able to use Nokia's location assets to build location-based
apps and experiences of superior quality.
- Nokia announced the availability of free turn by turn navigation with Nokia
Drive out of the box for all future Windows Phone 8 users in North America and
the United Kingdom.
- Nokia continued to update and enhance existing location applications,
including:
- Nokia Maps, the latest version of which brings better sharing and
personalization to Lumia smartphones; and
- Nokia Transport, the latest version of which extends coverage and introduces
features such as stops nearby, detailed line view and support for multiple
tiles.
- Nokia launched Nokia City Lens beta, which brings augmented reality to Nokia
Lumia, enabling users to orientate themselves and discover and recognize the
places in their immediate vicinity in a new way.
- Nokia continued to improve its web offering at maps.nokia.com refining
features and introducing a travel discovery element with city pages.
- Nokia entered into an agreement with the Audi Urban Intelligence Assist
(AUIA)
project aimed at developing connected car technologies that help reduce
congestion and improve safety supported by the use of NAVTEQ map data.
- Nokia announced the expansion of its location content offering in India with
an increase of coverage by 80% to more than 4200 cities and the launch of
Destination Maps in 150 malls in 17 cities.
NOKIA SIEMENS NETWORKS OPERATING HIGHLIGHTS
- Nokia Siemens Networks stepped up its mobile broadband deal momentum in the
second quarter, including a contract with SOFTBANK MOBILE Corp. in Japan to
upgrade its mobile broadband capacity across the country, supplying, deploying
and integrating its HSPA+ (3G) and FDD LTE (4G) networks; also in Japan it was
announced that Nokia Siemens Networks has deployed the world's first
multi-technology, multi-vendor self-operating 3G and 4G mobile networks in
Japan for
KDDI.
- Nokia Siemens Networks was also selected by T-Mobile to support its 4G
network
evolution plan with the modernization of its GSM, HSPA+ core and radio access
infrastructure in key markets to improve existing voice and data coverage.
- Other mobile broadband deals in the second quarter included: being selected
by
Singapore's StarHub as its 4G mobile broadband infrastructure and services
vendor; becoming the sole 4G, LTE radio and core network supplier and
expanding
3G and GSM networks for Tele2 in Estonia, Latvia and Lithuania; enabling
Croatia's first commercial 4G services with Hrvatski Telekom; being selected
to
deliver and manage 4G services in Jeddah for Saudi Arabian Zain KSA and
upgrading TOT's 3G network in Thailand to HSPA+.
- In May 2012, Nokia Siemens Networks signed a global reseller agreement with
Ruckus Wireless to help operators integrate Wi-Fi networks to deliver
cost-effective mobile broadband services, as part of its comprehensive small
cells
portfolio. Nokia Siemens Networks also extended its comprehensive small cells
portfolio with the launch of an enhanced range of picocell base stations and
3G
Femto access points, and announced a US-based trial of its Hot Zone approach
for
increasing network capacity in the Chicago area.
- At International CTIA Wireless 2012, in May, Nokia Siemens Networks unveiled
its 'Intelligent IP Edge', the world's most advanced network gateway that
enables operators to deliver a better mobile broadband experience and reduce
running costs using Nokia Siemens Networks' Liquid Net approach. Nokia Siemens
Networks also launched a new CDMA base station, bringing the benefits of its
globally recognized Flexi Multiradio Base Station platform to CDMA operators
whilst reducing base station operating costs by up to 70%, and with 4G upgrade
capability underlining Nokia Siemens Networks' commitment to mobile broadband
technology evolution.
- In June, Nokia Siemens Networks achieved 1.3 Gbps in China using its
commercial Flexi base station hardware, a new global TD-LTE speed record.
- Nokia Siemens Networks was recognized for its advances in Customer
Experience
Management (CEM) at the Global Telecoms Business (GTB) Innovation Awards 2012
in
the wireless infrastructure category where it won a joint award with Telkomsel
for its use of Nokia Siemens Networks' CEM on Demand portfolio. Guangdong MCC
in
China has signed up to Nokia Siemens Networks' CEM software and services,
enabling it to improve customer experience by providing a unified view of its
customer data and continuous reporting of usage trends.
- During the second quarter, Nokia Siemens Networks completed the sale of its
microwave transport business to DragonWave, and the sale of its fixed line
Broadband Access business to ADTRAN.
FORWARD-LOOKING STATEMENTS
It should be noted that certain statements herein that are not historical
facts
are forward-looking statements, including, without limitation, those
regarding:
A) the expected plans and benefits of our partnership with Microsoft to bring
together complementary assets and expertise to form a global mobile ecosystem
for smartphones; B) the timing and expected benefits of our new strategies,
including expected operational and financial benefits and targets as well as
changes in leadership and operational structure; C) the timing of the
deliveries
of our products and services; D) our ability to innovate, develop, execute and
commercialize new technologies, products and services; E) expectations
regarding
market developments and structural changes; F) expectations and targets
regarding our industry volumes, market share, prices, net sales and margins of
our products and services; G) expectations and targets regarding our
operational
priorities and results of operations; H) expectations and targets regarding
collaboration and partnering arrangements; I) the outcome of pending and
threatened litigation; J) expectations regarding the successful completion of
restructurings, investments, acquisitions and divestments on a timely basis
and
our ability to achieve the financial and operational targets set in connection
with any such restructurings, investments, acquisitions and divestments; and
K)
statements preceded by "believe," "expect," "anticipate," "foresee," "target,"
"estimate," "designed," "aim", "plans," "intends," "will" or similar
expressions. These statements are based on management's best assumptions and
beliefs in light of the information currently available to it. Because they
involve risks and uncertainties, actual results may differ materially from the
results that we currently expect. Factors that could cause these differences
include, but are not limited to: 1) our success in the smartphone market,
including our ability to introduce and bring to market quantities of
attractive,
competitively priced Nokia products with Windows Phone that are positively
differentiated from our competitors' products, both outside and within the
Windows Phone ecosystem; 2) our ability to make Nokia products with Windows
Phone a competitive choice for consumers, and together with Microsoft, our
success in encouraging and supporting a competitive and profitable global
ecosystem for Windows Phone smartphones that achieves sufficient scale, value
and attractiveness to all market participants; 3) reduced consumer demand for
Nokia smartphones that operate on current versions of the Windows Phone
platform
as consumers anticipate our launch and sales ramp-up of Nokia smartphones with
newer versions of the Windows Phone platform available from Microsoft,
specifically the new Windows Phone 8 operating system; 4) the difficulties we
experience in having a competitive offering of Symbian devices and maintaining
the economic viability of the Symbian smartphone platform during the
transition
to Windows Phone as our primary smartphone platform; 5) our ability to
effectively and timely implement planned changes to our operational structure,
including the planned restructuring measures, and to successfully complete the
planned investments, acquisitions and divestments in order to improve our
operating model and achieve targeted efficiencies and reductions in operating
expenses; 6) our future sales performance, among other factors, may require us
to recognize allowances related to excess component inventory, future purchase
commitments and inventory write-offs in our Devices & Services business; 7)
our ability to realize a return on our investment in next generation devices,
platforms and user experiences; 8) our ability to produce attractive and
competitive feature phones, including devices with more smartphone-like
features, in a timely and cost efficient manner with differentiated hardware,
software, localized services and applications; 9) the intensity of competition
in the various markets where we do business and our ability to maintain or
improve our market position or respond successfully to changes in the
competitive environment; 10) our ability to retain, motivate, develop and
recruit appropriately skilled employees; 11) the success of our Location &
Commerce strategy, including our ability to maintain current sources of
revenue,
provide support for our Devices & Services business and create new sources of
revenue from our location-based services and commerce assets; 12) our actual
performance in the short-term and long-term could be materially different from
our forecasts, which could impact future estimates of recoverable value of our
reporting units and may result in impairment charges; 13) our success in
collaboration and partnering arrangements with third parties, including
Microsoft; 14) our ability to increase our speed of innovation, product
development and execution to bring new innovative and competitive mobile
products and location-based or other services to the market in a timely
manner;
15) our dependence on the development of the mobile and communications
industry,
including location-based and other services industries, in numerous diverse
markets, as well as on general economic conditions globally and regionally;
16)
our ability to protect numerous patented standardized or proprietary
technologies from third-party infringement or actions to invalidate the
intellectual property rights of these technologies; 17) our ability to
maintain
and leverage our traditional strengths in the mobile product market if we are
unable to retain the loyalty of our mobile operator and distributor customers
and consumers as a result of the implementation of our strategies or other
factors; 18) the success, financial condition and performance of our
suppliers,
collaboration partners and customers; 19) our ability to manage efficiently
our
manufacturing and logistics, as well as to ensure the quality, safety,
security
and timely delivery of our products and services; 20) our ability to source
sufficient amounts of fully functional quality components, sub-assemblies,
software and services on a timely basis without interruption and on favorable
terms; 21) our ability to manage our inventory and timely adapt our supply to
meet changing demands for our products; 22) any actual or even alleged defects
or other quality, safety and security issues in our products; 23) the impact
of
a cybersecurity breach or other factors leading to any actual or alleged loss,
improper disclosure or leakage of any personal or consumer data collected by
us
or our partners or subcontractors, made available to us or stored in or
through
our products; 24) our ability to successfully manage the pricing of our
products
and costs related to our products and operations; 25) exchange rate
fluctuations, including, in particular, fluctuations between the euro, which
is
our reporting currency, and the US dollar, the Japanese yen and the Chinese
yuan, as well as certain other currencies; 26) our ability to protect the
technologies, which we or others develop or that we license, from claims that
we
have infringed third parties' intellectual property rights, as well as our
unrestricted use on commercially acceptable terms of certain technologies in
our
products and services; 27) the impact of economic, political, regulatory or
other developments on our sales, manufacturing facilities and assets located
in
emerging market countries; 28) the impact of changes in government policies,
trade policies, laws or regulations where our assets are located and where we
do
business; 29) the potential complex tax issues and obligations we may incur to
pay additional taxes in the various jurisdictions in which we do business and
our actual or anticipated performance, among other factors, could result in
allowances related to deferred tax assets; 30) any disruption to information
technology systems and networks that our operations rely on; 31) unfavorable
outcome of litigations; 32) allegations of possible health risks from
electromagnetic fields generated by base stations and mobile products and
lawsuits related to them, regardless of merit; 33) Nokia Siemens Networks
ability to implement its new strategy and restructuring plan effectively and
in
a timely manner to improve its overall competitiveness and profitability; 34)
Nokia Siemens Networks' success in the telecommunications infrastructure
services market and Nokia Siemens Networks' ability to effectively and
profitably adapt its business and operations in a timely manner to the
increasingly diverse service needs of its customers; 35) Nokia Siemens
Networks'
ability to maintain or improve its market position or respond successfully to
changes in the competitive environment; 36) Nokia Siemens Networks' liquidity
and its ability to meet its working capital requirements; 37) Nokia Siemens
Networks' ability to timely introduce new competitive products, services,
upgrades and technologies; 38) Nokia Siemens Networks' ability to execute
successfully its strategy for the acquired Motorola Solutions wireless network
infrastructure assets; 39) developments under large, multi-year contracts or
in
relation to major customers in the networks infrastructure and related
services
business; 40) the management of our customer financing exposure, particularly
in
the networks infrastructure and related services business; 41) whether ongoing
or any additional governmental investigations into alleged violations of law
by
some former employees of Siemens may involve and affect the carrier-related
assets and employees transferred by Siemens to Nokia Siemens Networks; and 42)
any impairment of Nokia Siemens Networks customer relationships resulting from
ongoing or any additional governmental investigations involving the Siemens
carrier-related operations transferred to Nokia Siemens Networks, as well as
the
risk factors specified on pages 13-47 of Nokia's annual report on Form 20-F
for
the year ended December 31, 2011 under Item 3D. "Risk Factors." Other unknown
or
unpredictable factors or underlying assumptions subsequently proving to be
incorrect could cause actual results to differ materially from those in the
forward-looking statements. Nokia does not undertake any obligation to
publicly
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent legally
required.
Nokia, Helsinki - July 19, 2012
- Nokia plans to publish its third quarter 2012 interim report on October
18, 2012.
www.nokia.com
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: NOKIA via Thomson Reuters ONE
[HUG#1627899]