Nokia Corporation Q1 2013 Interim Report
(Thomson Reuters ONE) -
Nokia Corporation
Interim report
April 18, 2013 at 13.00 (CET+1)
This is a summary of the first quarter 2013 interim report published today. The
complete first quarter 2013 interim report with tables is available at
http://www.results.nokia.com/results/Nokia_results2013Q1e.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 Group non-IFRS EPS in Q1 2013 was EUR -0.02; reported EPS was EUR -0.07.
- Nokia Group achieved underlying operating profitability for the third
consecutive quarter, with a Q1 non-IFRS operating margin of 3.1%.
- Devices & Services achieved underlying profitability for the second
consecutive quarter, with a Q1 non-IFRS operating margin of 0.1%. Devices &
Services benefitted from a strong focus on cost as well as the reversal of
approximately EUR 50 million of previously recognized inventory related
allowances in Q1.
- Nokia Siemens Networks achieved underlying profitability for the fourth
consecutive quarter, with a Q1 non-IFRS operating margin of 7.0%. Nokia Siemens
Networks benefitted from strong gross margin performance in Q1.
Nokia Group net sales in Q1 2013 were EUR 5.9 billion
- Devices & Services Q1 net sales decreased 25% quarter-on-quarter to EUR 2.9
billion.
- Lumia Q1 volumes increased 27% quarter-on-quarter to 5.6 million units,
reflecting increasing momentum.
- Mobile Phones Q1 volumes decreased 30% quarter-on-quarter to 55.8 million
units, reflecting competitive industry dynamics and an estimated higher than
normal seasonal decline in the market addressable by Mobile Phones.
- Nokia Siemens Networks net sales decreased 30% quarter-on-quarter to EUR 2.8
billion, reflecting industry seasonality.
Nokia Group net cash higher quarter-on-quarter
- Nokia Group ends first quarter 2013 with a strong balance sheet and solid cash
position. Gross cash was EUR 10.1 billion and net cash was EUR 4.5 billion.
- Nokia Group strengthened its net cash position by approximately EUR 120
million sequentially. Nokia Siemens Networks contributed approximately EUR 210
million to the Nokia Group net cash position.
Commenting on the results, Stephen Elop, Nokia CEO, said:
"At the highest level, we are pleased that Nokia Group achieved underlying
operating profitability for the third quarter in a row. While operating in a
highly competitive environment, Nokia is executing our strategy with urgency and
managing our costs very well.
We have areas where we are making progress, and areas where we are further
increasing the focus. For example, people are responding positively to the Lumia
portfolio, and our volumes are increasing quarter over quarter. Nokia Siemens
Networks delivered another strong quarter and contributed to an overall
improvement in Nokia Group's cash position. On the other hand, our Mobile Phones
business faces a difficult competitive environment, and we are taking tactical
actions and bringing new innovation to market to address our challenges.
All of these efforts are aimed at improving our financial performance and
delivering more value to our shareholders."
SUMMARY FINANCIAL INFORMATION
+--------------------+-----------------------------------------------+
| | Reported and Non-IFRS |
| | first quarter 2013 results1,2,3 |
| +---------+---------+--------+---------+--------+
| EUR million | Q1/2013 | Q1/2012 | YoY | Q4/2012 | QoQ |
| | | | Change | | Change |
+--------------------+---------+---------+--------+---------+--------+
| Nokia | | | | | |
| | | | | | |
| Net sales | 5 852 | 7 354 | -20% | 8 041 | -27% |
| | | | | | |
| Operating profit | -150 | -1 338 | | 427 | |
| | | | | | |
| Operating profit | 181 | -258 | | 623 | -71% |
| (non-IFRS) | | | | | |
| | | | | | |
| EPS, EUR diluted | -0.07 | -0.25 | | 0.05 | |
| | | | | | |
| EPS, EUR diluted | -0.02 | -0.08 | | 0.05 | |
| (non-IFRS)4 | | | | | |
| | | | | | |
| Net cash from | 206 | -590 | | 563 | -63% |
| operating | | | | | |
| activities | | | | | |
| | | | | | |
| Net cash and | 4 480 | 4 872 | -8% | 4 360 | 3% |
| other liquid | | | | | |
| assets5 | | | | | |
+--------------------+---------+---------+--------+---------+--------+
| Devices & | | | | | |
| Services6 | | | | | |
| | | | | | |
| Net sales | 2 888 | 4 246 | -32% | 3 854 | -25% |
| | | | | | |
| Smart Devices | 1 164 | 1 704 | -32% | 1 225 | -5% |
| net sales | | | | | |
| | | | | | |
| Mobile Phones | 1 590 | 2 311 | -31% | 2 468 | -36% |
| net sales | | | | | |
| | | | | | |
| Mobile device | 61.9 | 82.7 | -25% | 86.3 | -28% |
| volume | | | | | |
| (mn units) | | | | | |
| | | | | | |
| Smart Devices | 6.1 | 11.9 | -49% | 6.6 | -8% |
| volume | | | | | |
| (mn units) | | | | | |
| | | | | | |
| Mobile Phones | 55.8 | 70.8 | -21% | 79.6 | -30% |
| volume | | | | | |
| (mn units) | | | | | |
| | | | | | |
| Mobile device | 47 | 51 | -8% | 45 | 4% |
| ASP7 | | | | | |
| | | | | | |
| Smart Devices | 191 | 143 | 34% | 186 | 3% |
| ASP7 | | | | | |
| | | | | | |
| Mobile Phones | 28 | 33 | -15% | 31 | -10% |
| ASP7 | | | | | |
| | | | | | |
| Operating | -42 | -218 | | 263 | |
| profit | | | | | |
| | | | | | |
| Operating | 4 | -126 | | 39 | -90% |
| profit | | | | | |
| (non-IFRS) | | | | | |
| | | | | | |
| Operating | -1.5% | -5.1% | | 6.8% | |
| margin % | | | | | |
| | | | | | |
| Operating margin % | 0.1% | -3.0% | | 1.0% | |
| (non-IFRS) | | | | | |
+--------------------+---------+---------+--------+---------+--------+
| HERE6 | | | | | |
| | | | | | |
| Net sales | 216 | 277 | -22% | 278 | -22% |
| | | | | | |
| Operating profit | -97 | -94 | | -56 | |
| | | | | | |
| Operating profit | -5 | 36 | | 40 | |
| (non-IFRS) | | | | | |
| | | | | | |
| Operating | -44.9% | -33.9% | | -20.1% | |
| margin % | | | | | |
| | | | | | |
| Operating | -2.3% | 12.9% | | 14.4% | |
| margin % | | | | | |
| (non-IFRS) | | | | | |
+--------------------+---------+---------+--------+---------+--------+
| Nokia Siemens | | | | | |
| Networks6 | | | | | |
| | | | | | |
| Net sales | 2 804 | 2 947 | -5% | 3 988 | -30% |
| | | | | | |
| Operating profit | 3 | -1 004 | | 252 | -99% |
| | | | | | |
| Operating profit | 196 | -146 | | 576 | -66% |
| (non-IFRS) | | | | | |
| | | | | | |
| Operating | 0.1% | -34.1% | | 6.3% | |
| margin % | | | | | |
| | | | | | |
| Operating | 7.0% | -5.0% | | 14.4% | |
| margin % | | | | | |
| (non-IFRS) | | | | | |
+--------------------+---------+---------+--------+---------+--------+
Note 1 relating to non-IFRS (also referred to as "underlying") results: In
addition to information on our reported IFRS results, we provide certain
information on a non-IFRS, or underlying business performance, basis. 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 business 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 2 below
for information about the exclusions from our non-IFRS results. More
information, including a reconciliation of our Q1 2013 and Q1 2012 non-IFRS
results to our reported results, can be found in our complete Q1 2013 interim
report with tables on pages 19 and 21-25. A reconciliation of our Q4 2012 non-
IFRS results to our reported results can be found in our complete Q4 interim
report with tables on pages 18 and 20-24 published on January 24, 2013.
Note 2 relating to non-IFRS exclusions:
Q1 2013 - EUR 331 million (net) consisting of:
- EUR 129 million restructuring charge and other associated items in Nokia
Siemens Networks, including EUR 53 million of net charges related to country and
contract exits based on the strategy that focuses on key markets and product
segments.
- EUR 5 million restructuring charge in HERE
- EUR 72 million restructuring charge in Devices & Services
- EUR 27 million positive item from a cartel claim settlement 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 87 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
Q4 2012 - EUR 196 million (net) consisting of:
- EUR 255 million restructuring charge and other associated items in Nokia
Siemens Networks, including EUR 34 million of net charges related to country and
contract exits based on new strategy that focuses on key markets and product
segments, as well as an impairment of assets of EUR 2 million.
- EUR 9 million restructuring charge in HERE
- EUR 2 million restructuring related impairments in Devices & Services
- EUR 75 million net benefit from releases of restructuring provisions in
Devices & Services
- EUR 21 million positive item from a cartel claim settlements in Devices &
Services
- EUR 52 million net gain on sale of Vertu business in Devices & Services
- EUR 79 million net gain on sale of real estate in Devices & Services
- EUR 67 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 87 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 - 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 HERE
- 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 allowance for Nokia Siemens Networks
deferred tax assets impacting Nokia taxes.
Note 3 relating to changes to historical comparative financials due to revised
IFRS accounting standard, IAS19 Employee Benefits: The historical comparative
financials presented in the interim report include certain changes to previously
reported information. These changes result from the retrospective application of
a revised IFRS accounting standard IAS19, Employee Benefits and mainly relate to
consolidated statements of comprehensive income and financial position. For more
information on the adjustments between the previously reported information and
the adjusted information, please see the related disclosure starting on page 39
of the complete Q1 2013 interim report with tables.
Note 4 relating to non-IFRS Nokia EPS: Nokia taxes were unfavorably impacted by
Devices & Services taxes as no tax benefits are recognized for certain Devices &
Services deferred tax items. Certain prior year items in Nokia Siemens Networks
also had an unfavorable impact. If Nokia's earlier estimated long-term tax rate
of 26% had been applied, non-IFRS Nokia EPS would have been approximately 1.7
Euro cent higher in Q1 2013. Going forward on a non-IFRS basis, until a pattern
of tax profitability is reestablished, 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 HERE business
at a 26% rate.
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 36 of the complete Q1 2013 interim report with tables.
Note 6 relating to operational and reporting structure: We have three
businesses: Devices & Services, HERE and Nokia Siemens Networks and four
operating and reportable segments: Smart Devices and Mobile Phones within
Devices & Services, HERE and Nokia Siemens Networks. Smart Devices focuses on
smartphones and Mobile Phones focuses on mass market mobile devices, including
Asha full touch smartphones. Devices & Services also contains Devices & Services
Other which includes net sales of our luxury phone business Vertu through
October 12, 2012, spare parts and related cost of sales and operating expenses,
as well as intellectual property (IPR) income and common research and
development expenses. In October 2012, we completed the divestment of Vertu to
EQT VI, a European private equity firm. HERE focuses on the development of
location-based services and local commerce. We introduced HERE as the new brand
for our location and mapping service in November 2012. As of January 1, 2013 our
Location & Commerce business and reportable segment was renamed HERE. Nokia
Siemens Networks is one of the leading global providers of telecommunications
infrastructure hardware, software and services, with the focus on the mobile
broadband market. Nokia Siemens Networks' operational organization is based on
two business units: Mobile Broadband and Global Services. The Mobile Broadband
business unit provides mobile operators with radio and core network software
together with the hardware needed to deliver mobile voice and data services. The
Global Services business unit provides mobile operators with a broad range of
services, including professional services, network implementation and customer
care 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 through October 12, 2012, spare parts, as
well as intellectual property 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. As IPR income is included in
Devices & Services Other net sales, we provide our total mobile device ASP both
including and excluding IPR income. The mobile device ASP excluding IPR income
in the first quarter 2013 was EUR 45, down 10% from EUR 50 in the first quarter
2012 and up 5% from EUR 43 in the fourth quarter 2012.
NOKIA OUTLOOK
- Nokia expects its Devices & Services non-IFRS operating margin in the second
quarter 2013 to be approximately negative 2 percent, plus or minus four
percentage points. This outlook is based on Nokia's expectations regarding a
number of factors, including:
- competitive industry dynamics continuing to negatively affect the Mobile
Phones and Smart Devices business units;
- consumer demand for our products, particularly for our Mobile Phones products;
- continued ramp up for our Lumia smartphones;
- expected increases in Devices & Services' operating expenses; and
- the macroeconomic environment.
- In the second quarter 2013 supported by the wider availability of recently
announced Lumia products, Nokia expects the sequential growth in Lumia unit
volumes to be higher than the 27% sequential growth in the first quarter 2013.
- 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 expects HERE's non-IFRS operating margin in the second quarter 2013 to
be negative primarily due to lower recognized revenue from internal sales.
- Nokia and Nokia Siemens Networks expect Nokia Siemens Networks non-IFRS
operating margin in the second quarter 2013 to be approximately positive 5
percent, plus or minus four percentage points. This outlook is based on Nokia
Siemens Networks' expectations regarding a number of factors, including:
- competitive industry dynamics;
- product and regional mix; and
- the macroeconomic environment.
- Nokia and Nokia Siemens Networks continue to target to reduce Nokia Siemens
Networks' non-IFRS annualized operating expenses and production overheads by
more than EUR 1 billion by the end of 2013, compared to the end of 2011.
FIRST QUARTER 2013 FINANCIAL AND OPERATING DISCUSSION
NOKIA GROUP
See note 6 to our Summary Financial Information table above concerning our
current operational and reporting structure and note 3 concerning certain
changes to historical comparative financials due to a revised IFRS accounting
standard, IAS19 Employee Benefits. The following discussion includes information
on a non-IFRS, or underlying business performance, basis. See notes 1 and 2 to
our Summary Financial Information table above for information about our
underlying non-IFRS results and the non-IFRS exclusions for the periods
discussed below.
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.
+----------------------------------------------------------------+
| FIRST QUARTER 2013 NET SALES, |
| REPORTED & CONSTANT CURRENCY1 |
+--------------------------------------+------------+------------+
| | YoY Change | QoQ Change |
+--------------------------------------+------------+------------+
| Group net sales - reported | -20% | -27% |
| | | |
| Group net sales - constant currency1 | -21% | -26% |
| | | |
| Devices & Services | -32% | -25% |
| net sales - reported | | |
| | | |
| Devices & Services | -33% | -23% |
| net sales - constant currency1 | | |
| | | |
| Nokia Siemens Networks | -5% | -30% |
| net sales - reported | | |
| | | |
| Nokia Siemens Networks | -4% | -28% |
| net sales - constant currency1 | | |
+--------------------------------------+------------+------------+
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.
At constant currency Nokia Group's net sales would have decreased 21% year-on-
year and 26% sequentially.
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 |Q1/2013|Q1/2012| YoY|Q4/2012| QoQ|
| | | |Change| |Change|
+------------------------------+-------+-------+------+-------+------+
|Net cash from | 206 | -590| | 563| -63% |
|operating activities | | | | | |
+------------------------------+-------+-------+------+-------+------+
|NSN contribution (approximate)| 270 | 410 | -34% | 740| -64%|
+------------------------------+-------+-------+------+-------+------+
|Total cash and |10 102 | 9 793| 3%| 9 909| 2%|
|other liquid assets | | | | | |
+------------------------------+-------+-------+------+-------+------+
|NSN contribution | 2 753 | 1 535| 79% | 2 420| 14%|
+------------------------------+-------+-------+------+-------+------+
|Net cash and | 4 480 | 4 872| -8% | 4 360| 3% |
|other liquid assets1 | | | | | |
+------------------------------+-------+-------+------+-------+------+
|NSN contribution | 1 484 | 256| 480%| 1 270| 17%|
+------------------------------+-------+-------+------+-------+------+
Note 1: Total cash and other liquid assets minus interest-bearing liabilities.
In the first quarter 2013, Nokia Group total cash and other liquid assets
increased by EUR 193 million and Nokia Group net cash and other liquid assets
increased by EUR 120 million.
The items below are the primary drivers of the increase in Nokia Group net cash
and other liquid assets in the first quarter 2013 of EUR 120 million:
- Nokia Group level net profit adjusted for non-cash items of positive EUR 323
million;
- Nokia Group level net working capital related cash outflows of approximately
EUR 170 million, which included approximately EUR 250 million of restructuring
related cash outflows;
- Nokia Group excluding Nokia Siemens Networks level net working capital related
outflows of approximately EUR 300 million, which included approximately EUR 120
million of restructuring related outflows. The net working capital change in
Nokia Group excluding Nokia Siemens Networks is primarily due to a reduction of
payables, partially offset by a reduction of receivables;
- Nokia Siemens Networks level net working capital related inflows of
approximately EUR 140 million, which included approximately EUR 130 million of
restructuring related outflows. The net working capital change in Nokia Siemens
Networks is primarily due to a reduction of receivables, which more than offset
the reduction of payables;
- Nokia Group level net financial income and expense related cash inflow of
approximately EUR 80 million,
- Nokia Group level cash tax net outflows of approximately EUR 30 million;
- Nokia Group level CAPEX of approximately EUR 120 million; and
- Nokia Group level proceeds from the sale of fixed assets of approximately EUR
40 million.
In the first quarter 2013, due to the settlement of an intragroup balance, Nokia
Siemens Networks had a cash outflow related to net working capital of
approximately EUR 170 million and Nokia Group excluding Nokia Siemens Networks
had a cash inflow related to net working capital of approximately EUR 170
million. At the Nokia Group level the net impact was zero.
In the first quarter 2013, we received a quarterly platform support payment of
USD 250 million (approximately EUR 188 million) from Microsoft. Our agreement
with Microsoft includes platform support payments from Microsoft to us as well
as software royalty payments from us to Microsoft. 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
that vary over the life of the agreement. Software royalty payments, with
minimum 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. Over the life of the
agreement the total amount of the platform support payments is expected to
slightly exceed the total amount of the minimum software royalty commitment
payments. In accordance with the terms of the agreement, the platform support
payments and annual minimum software royalty commitment payments continue for a
corresponding period of time.
In the first quarter 2013, Nokia received a claim from Indian tax authorities
relating to withholding tax amounting to EUR 225 million plus applicable
interests. Nokia reiterates its position that its operations are in compliance
with local laws as well as the bilaterally negotiated tax treaty between the
Governments of India and Finland, and that it will defend itself vigorously
against the claim.
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 |
+---------------------------+---------+---------+--------+---------+--------+
| | Q1/2013 | Q1/2012 | YoY | Q4/2012 | QoQ |
| | | | Change | | Change |
+---------------------------+---------+---------+--------+---------+--------+
| Net sales (EUR million)1 | 2 888 | 4 246 | -32% | 3 854 | -25% |
+---------------------------+---------+---------+--------+---------+--------+
| Mobile device volume | 61.9 | 82.7 | -25% | 86.3 | -28% |
| (million units) | | | | | |
+---------------------------+---------+---------+--------+---------+--------+
| Mobile device ASP (EUR) | 47 | 51 | -8% | 45 | 4% |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS gross margin (%) | 25.1% | 24.4% | | 23.9% | |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS operating | 711 | 1 122 | -37% | 882 | -19% |
| expenses (EUR million) | | | | | |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS operating | 0.1% | -3.0% | | 1.0% | |
| margin (%) | | | | | |
+---------------------------+---------+---------+--------+---------+--------+
| Operating margin (%) | -1.5% | -5.1% | | 6.8% | |
+---------------------------+---------+---------+--------+---------+--------+
Note 1: Includes IPR 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.
Smartphone Volumes
In the first quarter 2013, Devices & Services total smartphone volumes were
11.1 million units, composed of:
- 5.0 million Asha full touch smartphones in Mobile Phones
- 5.6 million Lumia smartphones in Smart Devices
- 0.5 million Symbian smartphones in Smart Devices
Devices & Services Other
Year-on-year Devices & Services Other net sales were lower in the first quarter
2013 primarily due to the divestment of Vertu. In addition to the divestment of
Vertu, the sequential Devices & Services Other net sales were lower in the first
quarter 2013 due to the absence of a non-recurring IPR income of approximately
EUR 50 million that was recognized in the fourth quarter 2012.
Following the divestment of Vertu in October 2012, Devices & Services Other net
sales are comprised of IPR income and sales of spare parts. Within Devices &
Services Other, we estimate that our current annual IPR income run-rate is
approximately EUR 0.5 billion.
Channel Inventory
We ended the first quarter 2013 slightly above the high end of our normal 4 to
6 week channel inventory range. On an absolute unit basis channel inventories
decreased 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 income is allocated to the geographic areas
contained in this chart.
+----------------------------------------------------------------------+
| DEVICES & SERVICES NET SALES |
| BY GEOGRAPHIC AREA |
+----------------------+---------+---------+--------+---------+--------+
| EUR million | Q1/2013 | Q1/2012 | YoY | Q4/2012 | QoQ |
| | | | Change | | Change |
+----------------------+---------+---------+--------+---------+--------+
| Europe | 895 | 1 352 | -34% | 1 210 | -26% |
| | | | | | |
| Middle East & Africa | 501 | 737 | -32% | 745 | -33% |
| | | | | | |
| Greater China | 256 | 577 | -56% | 213 | 20% |
| | | | | | |
| Asia-Pacific | 724 | 945 | -23% | 941 | -23% |
| | | | | | |
| North America | 101 | 93 | 9% | 196 | -48% |
| | | | | | |
| Latin America | 411 | 542 | -24% | 549 | -25% |
+----------------------+---------+---------+--------+---------+--------+
| Total | 2 888 | 4 246 | -32% | 3 854 | -25% |
+----------------------+---------+---------+--------+---------+--------+
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 | Q1/2013 | Q1/2012 | YoY | Q4/2012 | QoQ |
| | | | Change | | Change |
+----------------------+---------+---------+--------+---------+--------+
| Europe | 11.8 | 15.8 | -25% | 19.4 | -39% |
| | | | | | |
| Middle East & Africa | 15.5 | 21.4 | -28% | 21.8 | -29% |
| | | | | | |
| Greater China | 3.4 | 9.2 | -63% | 4.6 | -26% |
| | | | | | |
| Asia-Pacific | 23.1 | 26.1 | -11% | 28.7 | -20% |
| | | | | | |
| North America | 0.4 | 0.6 | -33% | 0.7 | -43% |
| | | | | | |
| Latin America | 7.7 | 9.6 | -20% | 11.1 | -31% |
+----------------------+---------+---------+--------+---------+--------+
| Total | 61.9 | 82.7 | -25% | 86.3 | -28% |
+----------------------+---------+---------+--------+---------+--------+
On a year-on-year basis, net sales decreased in all regions except North America
where the increase was primarily due to our Smart Devices business unit. The
largest relative year-on-year decline in net sales was in Greater China followed
by Europe and Middle East and Africa. In Greater China and Europe the net sales
declines were primarily due to our Smart Devices business unit whereas in the
Middle East and Africa the net sales decline was primarily due to our Mobile
Phones business unit.
On a sequential basis, net sales decreased in all regions except Greater China
where the increase was primarily due to our Smart Devices business unit. The
largest relative sequential declines in net sales were in North America followed
by Middle East and Africa and Europe. The sequential net sales decline in North
America was primarily due to our Smart Devices business unit, whereas in Middle
East and Africa and Europe the net sales declines were primarily due to our
Mobile Phones business unit.
At constant currency Devices & Services' net sales would have decreased 33%
year-on-year and 23% sequentially.
Non-IFRS Operating Expenses
Devices & Services non-IFRS operating expenses decreased 37% year-on-year and
19% sequentially in the first quarter 2013. On a year-on-year basis, operating
expenses related to Mobile Phones and Smart Devices decreased 43% and 24%,
respectively, in the first quarter 2013. On a sequential basis, operating
expenses related to Mobile Phones decreased by 23%, while Smart Devices
operating expenses decreased 13% in the first quarter 2013. In addition to the
factors described below, the year-on-year and sequential changes were affected
by 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 Smart
Devices and Mobile Phones, respectively.
Devices & Services non-IFRS research and development expenses decreased 37%
year-on-year in the first quarter 2013. On a sequential basis, Devices &
Services non-IFRS research and development expenses decreased 15% in the first
quarter 2013. The year-on-year decline was primarily due to ramping down Symbian
and MeeGo research and development efforts, reductions in certain Mobile Phones
related activities and overall cost controls. On a sequential basis, the decline
was primarily due to overall cost controls.
Devices & Services non-IFRS sales and marketing expenses decreased 36% year-on-
year in the first quarter 2013. On a year-on-year basis, marketing expenses
declined primarily due to tight cost control and headcount reductions, lower
product specific marketing and a lower cost base as a result of business
divestments. On a sequential basis, Devices & Services non-IFRS sales and
marketing expenses decreased 26% in the first quarter 2013. Sequentially,
marketing expenses decreased primarily due to seasonality, headcount reductions
and tight cost control.
Devices & Services non-IFRS administrative and general expenses decreased 38%
year-on-year in the first quarter 2013 and were flat sequentially. The year-on-
year decrease was primarily related to cost savings in support functions and
business divestments, partially offset by shared function cost categorization.
In the first quarter 2013, Devices & Services non-IFRS other income and expense
had a positive year-on-year and negative sequential impact on profitability.
On a reported basis, in the first quarter 2013 Devices & Services other income
and expense was negatively affected due to restructuring costs for changes in
the IT organization, offset by a positive item from a cartel settlement. In the
fourth quarter 2012, other income was positively affected primarily as a result
of gains from real estate sales, business divestments, a positive item from a
cartel settlement, and restructuring-related provision releases, which were
recognized in Devices & Services Other.
Non-IFRS Operating Margin
The higher year-on-year Devices & Services non-IFRS operating margin in the
first quarter 2013 was primarily due to lower operating expenses as a percentage
of net sales and higher gross margin.
The sequentially lower Devices & Services non-IFRS operating margin in the first
quarter 2013 was primarily due to higher operating expenses as a percentage of
net sales partially offset by higher gross margin.
Operating Margin
The higher year-on-year Devices & Services operating margin in the first quarter
2013 was primarily due to lower operating expenses as a percentage of net sales,
lower other income and expenses (net other expense in both first quarter 2013
and first quarter 2012) as a percentage of net sales and higher gross margin.
The sequentially lower Devices & Services operating margin in the first quarter
2013 was primarily due to other income and expenses (net other expense in first
quarter 2013 and net other income in fourth quarter 2012) as a percent of net
sales as well as higher operating expenses as a percentage of net sales,
partially offset by higher gross margin.
Cost Reduction Activities and Planned Operational Adjustments
The following table sets forth a summary of our Devices & Services cost
reduction activities and planned operational adjustments.
+--------------------------------------------------------------------------------+
|DEVICES & SERVICES RESTRUCTURING SUMMARY |
+-------------+-------------+-------------+------------+------------+------------+
|EUR (million)| Q1/2013|Cumulative up| Q2/2013| 2013 | Total|
| |(approximate)| to Q1/2013|(approximate|(approximate|(approximate|
| | |(approximate)| estimate)| estimate| estimate)|
+-------------+-------------+-------------+------------+------------+------------+
|Restructuring| 72| 1 400|Not provided|Not provided| 1 600|
|related | | | | | |
|charges | | | | | |
+-------------+-------------+-------------+------------+------------+------------+
|Restructuring| 110| 1 200| 50| 300| 1 400|
|related cash | | | | | |
|outflows | | | | | |
+-------------+-------------+-------------+------------+------------+------------+
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.
At the end of the first quarter 2013, Devices & Services and Corporate Common
had approximately 31 600 employees, a reduction of approximately 15 500 compared
to the end of the first quarter 2012, and approximately 1 600 compared to the
end of the fourth quarter 2012.
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 |
+--------------------------+---------+---------+--------+---------+--------+
| | Q1/2013 | Q1/2012 | YoY | Q4/2012 | QoQ |
| | | | Change | | Change |
+--------------------------+---------+---------+--------+---------+--------+
| Net sales (EUR million)1 | 1 164 | 1 704 | -32% | 1 225 | -5% |
+--------------------------+---------+---------+--------+---------+--------+
| Smart Devices volume | 6.1 | 11.9 | -49% | 6.6 | -8% |
| (million units) | | | | | |
+--------------------------+---------+---------+--------+---------+--------+
| Smart Devices ASP (EUR) | 191 | 143 | 34% | 186 | 3% |
+--------------------------+---------+---------+--------+---------+--------+
| Gross margin (%) | 20.7% | 15.6% | | 18.0% | |
+--------------------------+---------+---------+--------+---------+--------+
| Operating expenses | 420 | 556 | -24% | 481 | -13% |
| (EUR million)2 | | | | | |
+--------------------------+---------+---------+--------+---------+--------+
| Contribution margin (%)2 | -16.2% | -18.3% | | -21.6% | |
+--------------------------+---------+---------+--------+---------+--------+
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year and sequential changes in operating expenses were
affected by 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 Smart Devices in the
first quarter 2013. Accordingly, first quarter 2013 operating expenses are not
directly comparable to first and fourth quarters 2012 operating expenses.
Net Sales
Both on a year-on-year and sequential basis, the declines in our Smart Devices
net sales in the first quarter 2013 were due to lower volumes partially offset
by higher ASPs.
Volume
During the first quarter 2013 we shipped 6.1 million Smart Devices units, of
which 5.6 million units were Lumia products and 0.5 million units were Symbian
products. In the first quarter 2013, approximately two-thirds of our Lumia
volumes were Windows Phone 8-based products.
The year-on-year decline in our Smart Devices volumes in the first quarter 2013
continued to be driven by the strong momentum of competing smartphone platforms
and our portfolio transition from Symbian products to Lumia products. The
decline was primarily due to lower Symbian volumes, partially offset by higher
Lumia volumes.
On a sequential basis, the decrease in our Smart Devices volumes in the first
quarter 2013 was primarily due to lower Symbian volumes, partially offset by
higher Lumia volumes as we started shipping the Lumia 620 in significant volumes
and broadened the geographical distribution of the Lumia 920 and Lumia 820. On a
geographical basis, Lumia volumes increased sequentially in all regions except
for North America.
Average Selling Price
The year-on-year increase in our Smart Devices ASP in the first quarter 2013 was
primarily due to a positive mix shift towards sales of our Lumia products which
carry a higher ASP than our Symbian products, partially offset by our pricing
actions which commenced in the second quarter 2012 primarily related to our
Windows Phone 7-based Lumia products.
Sequentially, the increase in our Smart Devices ASP in the first quarter 2013
was primarily due to a positive mix shift towards sales of our Windows Phone 8-
based Lumia products, partially offset by price erosion. The ASP of our Lumia
products in the first quarter 2013 was EUR 182, compared to EUR 192 in the
fourth quarter 2012.
Gross Margin
The year-on-year increase in our Smart Devices gross margin in the first quarter
2013 was primarily due to the positive mix shift towards higher gross margin
products, the reversal of approximately EUR 50 million of previously recognized
inventory related allowances related to our Windows Phone 7-based Lumia
products, cost erosion of materials we use in our products and lower Symbian
fixed costs per unit. This was partially offset by the pricing actions we
commenced in the second quarter 2012 primarily related to our Windows Phone 7-
based Lumia products, as well as a net negative impact related to foreign
currency fluctuations and higher warranty costs. From an operating system
perspective, the year-on-year increase in our Smart Devices gross margin in the
first quarter 2013 was due to a higher gross margin for our Lumia products, as
well as for our Symbian products.
On a sequential basis, the increase in our Smart Devices gross margin in the
first quarter 2013 was primarily due to a positive product mix shift towards
higher gross margin products, as well as the reversal of approximately EUR 50
million of previously recognized inventory related allowances related to our
Windows Phone 7-based Lumia products. This was partially offset by greater price
erosion than cost erosion, a net negative impact related to foreign currency
fluctuations and higher warranty costs.
During the first quarter 2013 our Windows Phone 8-based Lumia products generated
a gross margin, somewhat above the overall Smart Devices gross margin of 20.7%.
Increases or decreases to Smart Devices inventory related allowances may be
required in the future depending on several factors, including consumer demand
and continued ramp up particularly related to our new Lumia products.
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 |
+------------------------------------+-------+-------+------+-------+------+
| |Q1/2013|Q1/2012| YoY|Q4/2012| QoQ|
| | | |Change| |Change|
+------------------------------------+-------+-------+------+-------+------+
|Net sales (EUR million)1 | 1 590| 2 311| -31%| 2 468| -36%|
+------------------------------------+-------+-------+------+-------+------+
|Mobile Phones volume (million units)| 55.8| 70.8| -21%| 79.6| -30%|
+------------------------------------+-------+-------+------+-------+------+
|Mobile Phones ASP (EUR) | 28| 33| -15%| 31| -10%|
+------------------------------------+-------+-------+------+-------+------+
|Gross margin (%) | 22.9%| 25.9%| | 22.2%| |
+------------------------------------+-------+-------+------+-------+------+
|Operating expenses (EUR million)2 | 267| 472| -43%| 346| -23%|
+------------------------------------+-------+-------+------+-------+------+
|Contribution margin (%)2 | 5.5%| 4.6%| | 8.2%| |
+------------------------------------+-------+-------+------+-------+------+
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year and sequential changes in operating expenses were
affected by 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 Mobile Phones in the
first quarters 2013. Accordingly, first quarter 2013 operating expenses are not
directly comparable to first and fourth quarter 2012 operating expenses.
Net Sales
Both on a year-on-year and sequential basis, the declines in our Mobile Phones
net sales in the first quarter 2013 were due to lower volumes and lower ASPs.
Volume
During the first quarter 2013 we shipped 55.8 million Mobile Phones units, of
which 5.0 million were Asha full touch smartphones.
On a year-on-year basis, our Mobile Phones volumes in the first quarter 2013
were negatively affected by competitive industry dynamics, including intense
smartphone competition at increasingly lower price points and intense
competition at the low end of our product portfolio as well as an estimated
higher than normal seasonal decline in the market addressable by Mobile Phones.
Compared to the first quarter 2012, our Mobile Phones volumes declined across
our portfolio, most notably for our non-full touch devices that we sell to our
customers for above EUR 30. These declines were partially offset by sales
volumes of Asha full touch smartphones in the first quarter 2013 that were not
part of our portfolio in the first quarter 2012.
On a sequential basis, our Mobile Phones volumes in the first quarter 2013 were
negatively affected by competitive industry dynamics, including intense
competition at the low end of our product portfolio and smartphone competition
at increasingly lower price points affecting the rest of our Mobile Phones
portfolio, as well as estimated higher than normal seasonal decline in the
market addressable by Mobile Phones. Compared to the fourth quarter 2012 our
Mobile Phones volumes declined across our portfolio, most notably for lower
priced devices that we sell to our customers for below EUR 30.
Asha full touch smartphones Q1 volumes decreased 46% quarter-on-quarter to 5.0
million units, reflecting intense competitive industry dynamics as well as lower
seasonal demand.
During the first quarter 2013, our Mobile Phones channel inventory declined in
absolute unit volumes.
Average Selling Price
The year-on-year decline in our Mobile Phones ASP in the first quarter 2013 was
primarily due to general price erosion and an increased proportion of sales of
lower priced devices, partially offset by a net positive impact related to
foreign currency fluctuations.
The sequential decline in our Mobile Phones ASP in the first quarter 2013 was
primarily due to general price erosion, a net negative impact related to foreign
currency fluctuations and a higher proportion of sales of lower priced devices.
Gross Margin
The year-on-year decline in our Mobile Phones gross margin in the first quarter
2013 was primarily due to a negative product mix shift towards lower gross
margin devices, as well as the net negative impact related to foreign currency
fluctuations, partially offset by lower freight costs.
On a sequential basis, the increase in our Mobile Phones gross margin in the
first quarter 2013 was primarily due to lower warranty costs, partially offset
by higher price erosion than cost erosion and higher fixed costs per unit
because of lower sales volumes.
HERE
In November 2012, Nokia introduced HERE as the new brand for its location and
mapping service. As of January 1, 2013 our Location & Commerce business and
reportable segment was renamed HERE.
The following table sets forth a summary of the results for HERE for the periods
indicated, as well as the year-on-year and sequential growth rates.
+----------------------------------------------------------------------+
|HERE RESULTS SUMMARY |
+--------------------------------+-------+-------+------+-------+------+
| |Q1/2013|Q1/2012| YoY|Q4/2012| QoQ|
| | | |Change| |Change|
+--------------------------------+-------+-------+------+-------+------+
|Net sales (EUR million) | 216| 277| -22%| 278| -22%|
+--------------------------------+-------+-------+------+-------+------+
|External net sales (EUR million)| 164| 166| -1%| 204| -20%|
+--------------------------------+-------+-------+------+-------+------+
|Internal net sales (EUR million)| 52| 111| -53%| 74| -30%|
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS gross margin (%) | 75.5%| 77.7%| | 82.0%| |
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS operating | 168| 174| -3%| 189| -11%|
|expenses (EUR million) | | | | | |
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS operating | -2.3%| 12.9%| | 14.4%| |
|margin (%) | | | | | |
+--------------------------------+-------+-------+------+-------+------+
|Operating margin (%) | -44.9%| -33.9%| | -20.1%| |
+--------------------------------+-------+-------+------+-------+------+
Net Sales
In the first quarter 2013, the year-on-year decrease in external HERE net sales
was primarily due to lower net sales to our personal navigation device customers
as well as lower advertising revenue, partially offset by higher sales of map
content licenses to vehicle customers due to higher consumer uptake of vehicle
navigation systems and higher platform sales.
In the first quarter 2013, the sequential decrease in external HERE net sales
was primarily due to lower seasonal sales to our personal navigation device and
vehicle customers.
In the first quarter 2013, the year-on-year and sequential declines in internal
HERE net sales were due to declines in sales, including lower recognition of
deferred revenue, primarily related to our Smart Devices business unit.
Gross Margin
Both on a year-on-year and sequential basis, the decreases in HERE non-IFRS
gross margin in the first quarter 2013 were primarily due to lower net sales to
our personal navigation device customers as well as lower internal sales.
Operating Expenses
HERE non-IFRS research and development expenses decreased 2% year-on-year due to
cost reduction actions. On a sequential basis, research and development expenses
decreased 11% in the first quarter 2013 primarily due to decreased product
development spending.
HERE non-IFRS sales and marketing expenses decreased 13% year-on-year primarily
due to cost reduction actions. On a sequential basis, sales and marketing
expenses decreased 21% in the first quarter 2013 primarily due to lower seasonal
marketing spend and the absence of marketing investments in the HERE brand
launch in the fourth quarter 2012.
HERE non-IFRS administrative and general expenses were approximately flat year-
on-year and sequentially in the first quarter 2013.
HERE non-IFRS other income and expense for the first quarter 2013 was
approximately zero, compared to expense of EUR 6 million in the first quarter
2012 and income of EUR 1 million in the fourth quarter 2012.
Non-IFRS Operating Margin
The year-on-year decrease in HERE non-IFRS operating margin in the first quarter
2013 was primarily due to higher operating expenses as a percentage of net sales
and lower gross margin.
The sequential decrease in HERE non-IFRS operating margin in the first quarter
2013 was primarily due to higher operating expenses as a percentage of net sales
and lower gross margin.
Operating Margin
The year-on-year decrease in HERE operating margin in the first quarter 2013 was
primarily due to higher operating expenses as a percentage of net sales, lower
gros
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