Nokia Tops on Q3 Earnings, Lags Rev

Zacks

Nokia Corp. (NOK), the beleaguered mobile handset developer and network infrastructure manufacturer, reported mixed financial results for the third quarter of 2013. However, the company continues to lose market share in the mobile device market despite witnessing sequential growth of its flagship Lumia series of smartphones. Nokia currently has a Zacks Rank #3 (Hold).

Quarterly net loss was approximately $137.7 million or 2 cents per share compared with a net loss of $1,180 million or a loss of 33 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) earnings per share of 1 cent were better than the Zacks Consensus Estimate of a break even. On the other hand, quarterly net revenue was approximately $7,814 million, a stiff year-over-year fall of 21.8% and well below the Zacks Consensus Estimate of $7,842 million.  

Quarterly adjusted gross margin was 31.7% compared with 27.6% in the prior-year quarter. Adjusted operating margin, in the reported quarter, was 3.8% as against 1.2% in the year-ago quarter. During third-quarter 2013, the company generated $11.9 million of cash from operation compared with cash consumption of $568 million in the year-ago quarter. Free cash flow, in the reported quarter, was a negative $84.8 million as against a negative $658 million in the year-ago quarter.  

At the end of the third quarter of 2013, Nokia had approximately $12,587 million of cash and marketable securities compared with $11,722 million at the end of 2012. Total debt, at the end of the reported quarter, was around $8,901 million as against $7,003 million at the end of 2012. The debt-to-capitalization ration at the end of the third quarter of 2013 was 0.41 compared with 0.36 at the end of 2012. 

Devices & Services Segment

Quarterly total revenue was approximately $3,838 million, down 18.7% year over year. Within this segment, Smartdevices revenues were $1,661 million, up 28.5% year over year. Mobile Phones revenues were $1,972 million, down 37.1% from the year-ago quarter. Other revenues were $205 million, down 29.9% year over year. Quarterly adjusted operating loss for this segment was approximately $114 million, down 87.2% year over year. Adjusted operating margin was a negative 3% compared with a negative 18.9% in the prior-year quarter.

Smartphones average selling price (ASP) was $189.4, down 8% year over year. Mobile Phone ASP was $35.8, down 13% year over year. In the third quarter of 2013, Nokia shipped 8.8 million Lumia smartphones, up 40% from the prior-year quarter and 64.6 million Mobile Phones (including 5.9 million Asha full-touch phones), down 22% year over year. Nokia lost its global mobile phone leadership to Smasung, which manufacturer smartphnes integrated with the Andriod software of Google Inc. (GOOG). Recently, Nokia has decided to divest its Devices and Services segment to Microsoft Corp. (MSFT) for approximately $7.2 billion in cash. 

Nokia Solutions and Networks Segment

Quarterly total revenue was approximately $3,433 million, down 26% year over year. Quarterly adjusted operating profit was approximately $220 million, down 9.3% year over year. However, adjusted operating margin was 6.4% compared with 5.3% in the prior-year quarter. Nokia has purchased the remaining 50% stake of this division from Siemens AG (SI) for $2.2 billion.

HERE Segment

Quarterly total revenue was approximately $279 million, down 20.4% year over year. Quarterly adjusted operating profit was $18.5 million compared with an operating loss of $74 million in the prior-year quarter. Adjusted operating margin was 6.6% compared with a negative 21.1% in the year-ago quarter.

Outlook

For the fourth quarter of 2013, adjusted operating margin for the Nokia Solutions and Networks segment will be 12% plus or minus 4%. Nokia further expects to reduce operating expenses in this segment by more than €1 billion by 2013 from the 2010 level of €5.35 billion. Management aims to reduce its Devices & Services segment’s adjusted operating expenses to around €3 billion by the end of 2013.

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