Nokia Corporation Q2 2012 Interim Report
(Thomson Reuters ONE) -
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 | 4 197 | 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 |
+----------------------+---------+---------+------------+---------+------------+
| EUR million | Q2/2012 | Q2/2011 | YoY Change | Q1/2012 | QoQ 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 |
+----------------------+---------+---------+------------+---------+------------+
| million units | Q2/2012 | Q2/2011 | YoY Change | Q1/2012 | QoQ 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 |
+----------------------+---------+---------+------------+---------+------------+
| EUR millions | Q2/2012 | Q2/2011 | YoY Change | Q1/2012 | QoQ 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% |<
Unternehmensinformation / Kurzprofil:
Datum: 19.07.2012 - 12:01 Uhr
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News-ID 166959
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