Nokia Profits Drop 90%

Nokia have recently announced their 2008 results and they are down in profits by 90%!.  Was this to be expected when everyone is in a recession and customers holding onto their money more than ever just to get the basics?.

Although on the bright side, the Nokia 5800XM has been flying off the shelves all around the world so not all is bad for the finnish company.

What will be interesting is how new devices such as the Nokia N97, Nokia N86 8MP and the new range of XpressMusic phones rumored to be announced at Nokia World this year impact on their next years results.

FIRST QUARTER 2009 HIGHLIGHTS

- Nokia net sales of EUR 9.3 billion, down 27% year on year and sequentially (down 24% and down 25% at constant currency).

- Devices & Services net sales of EUR 6.2 billion, down 33% year on year and down 24% sequentially (down 31% and down 23% at constant currency).

- Services net sales of EUR 150 million (billings of EUR 166 million), up 79% year on year and down 5% sequentially.

- Estimated industry mobile device volumes of 255 million units, down 14% year on year and down 16% sequentially.

- Nokia mobile device volumes of 93.2 million units, down 19% year on year and down 18% sequentially.

- Nokia 5800 XpressMusic volumes of 2.6 million units, with cumulative shipments of more than 3 million units since the smartphone’s launch in late November 2008.

- Nokia estimated mobile device market share of 37% in Q1 2009, down from 39% in Q1 2008 and unchanged from Q4 2008.

- Nokia mobile device ASP of EUR 65, down from EUR 71 in Q4 2008.

- Devices & Services gross margin of 33.8%, unchanged from Q4 2008.

- NAVTEQ net sales of EUR 132 million, down 36% sequentially from EUR 205 million, and non-IFRS operating margin of 3.7% (25.7% in Q4 2008)

- Nokia Siemens Networks net sales of EUR 3.0 billion, down 12% year on year and down 31% sequentially (down 9% and down 30% at constant currency).

- Nokia operating cash flow of EUR 276 million.

- Total cash and other liquid assets of EUR 8.1 billion at the end of Q1 2009.

OLLI-PEKKA KALLASVUO, NOKIA CEO:

“In what has been an exceptionally tough environment, we continue to invest in a focused manner in consumer Internet services delivered across our broad portfolio of mobile devices. Combined, these solutions will drive our future growth. As an example in Q1, I am especially pleased with the performance of our first mass market touch product, the Nokia 5800 XpressMusic. Together with Comes With Music, it is a great example of Nokia providing solutions that consumers value.

Regarding the health of the overall mobile device market, the inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors. This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter.”

INDUSTRY AND NOKIA OUTLOOK

- Nokia expects industry mobile device volumes in the second quarter 2009 to be at approximately the same level or up slightly sequentially.

- Nokia expects its mobile device market share in the second quarter 2009 to increase sequentially.

- Nokia continues to expect 2009 industry mobile device volumes to decline approximately 10% from 2008 levels. Nokia continues to expect the decline to be greater in the first half than in the second half of the year.

- Nokia continues to target an increase in its market share in mobile devices in 2009.

- Nokia continues to target its non-IFRS operating margin in Devices & Services to be more than 10% in the first half 2009 and to be in the teens for the second half 2009.

- Nokia continues to target its annualized non-IFRS operating expense run rate in Devices & Services to be lower than EUR 6 billion by the end of 2010. This would represent a reduction of more than EUR 700 million to the annualized run rate at the beginning of 2009. Nokia continues to target that a majority of the reduction will happen during 2009.

- Nokia and Nokia Siemens Networks now expect the mobile infrastructure and fixed infrastructure and related services market to decline approximately 10% in Euro terms in 2009, from 2008 levels. This is an update to Nokia and Nokia Siemens Networks’ earlier estimate that the mobile infrastructure and fixed infrastructure and related services market would decline 5% or more in Euro terms in 2009, from 2008 levels.

- Nokia and Nokia Siemens Networks continue to target for Nokia Siemens Networks market share to remain constant in 2009, compared to 2008.

FIRST QUARTER 2009 FINANCIAL HIGHLIGHTS

(Comparisons are given to the first quarter 2008, unless otherwise indicated.)

The non-IFRS results exclusions

Q1 2009 – EUR 459 million consisting of:

- EUR 34 million of impairment of intangible assets in Devices & Services

- EUR 59 million restructuring charge in Devices & Services

- EUR 123 million restructuring charge and other one-time items in Nokia Siemens Networks

- EUR 116 million of intangible assets amortization and other purchase price related items arising from the formation of Nokia Siemens Networks

- EUR 125 million of intangible assets amortization and other purchase price related items arising from the acquisition of NAVTEQ

- EUR 2 million of intangible assets amortization and other purchase price related items arising from the acquisition of OZ Communications in Devices & Services

Q4 2008 – EUR 747 million consisting of:

- EUR 286 million restructuring charge and other one-time items in Nokia Siemens Networks

- EUR 52 million restructuring charge in Devices & Services

- EUR 165 million representing the contribution of assets to Symbian Foundation

- EUR 5 million restructuring charge in NAVTEQ

- EUR 118 million of intangible asset amortization and other purchase price accounting related items arising from the formation of Nokia Siemens Networks

- EUR 121 million of intangible asset amortization and other purchase price accounting related items arising from the acquisition of NAVTEQ

Q1 2008 – EUR 453 million (net) consisting of:

- EUR 217 million loss due to transfer of Finnish pension liabilities in Corporate Common Functions

- EUR 81 million facilities impairment and other charges related to closure of the Bochum site in Germany in Devices & Services

- EUR 65 million gain due to transfer of Finnish pension liabilities in Nokia Siemens Networks

- EUR 100 million restructuring charge in Nokia Siemens Networks

- EUR 120 million of intangible asset amortization and other purchase price accounting related items arising from the formation of Nokia Siemens Networks

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 Group

Nokia’s first quarter 2009 net sales decreased 27% to EUR 9.3 billion, compared with EUR 12.7 billion in the first quarter 2008. At constant currency, Group net sales would have decreased 24% year on year and decreased 25% sequentially.

The following chart sets out the year on year and sequential growth rates in our net sales on a reported basis and at constant currency for the periods indicated.

NOKIA FIRST QUARTER 2009 NET SALES Reported & Constant Currency1
	Q1/2009 vs.Q1/2008 Change	Q1/2009 vs. Q4/2008  Change
Group net sales – reported	-27%	-27%
Group net sales – constant currency1	-24%	-25%
Devices & Services net sales – reported	-33%	-24%
Devices & Services net sales – constant currency1	-31%	-23%
Nokia Siemens Networks net sales – reported	-12%	-31%
Nokia Siemens Networks net sales – constant currency1	-9%	-30%

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.

Nokia’s first quarter 2009 reported operating profit decreased 96% to EUR 55 million, compared with EUR 1.5 billion in the first quarter 2008. Nokia’s first quarter 2009 non-IFRS operating profit decreased 74% to EUR 514 million, compared with EUR 2.0 billion in the first quarter 2008. Nokia’s first quarter 2009 reported operating margin was 0.6% (12.1%). Nokia’s first quarter 2009 non-IFRS operating margin was 5.5% (15.7%).

Operating cash flow for the first quarter 2009 was EUR 276 million. Operating cash flow for the first quarter 2008 was EUR 757 million. Total cash and other liquid assets were EUR 8.1 billion at March 31, 2009, compared with EUR 10.4 billion at March 31, 2008. At March 31, 2009, Nokia’s net debt-equity ratio (gearing) was -14%, compared with -53% at March 31, 2008.

Devices & Services

In the first quarter 2009, the total mobile device volumes of our Devices & Services group were 93.2 million units, representing a decline of 19% year on year and 18% sequentially. The overall industry mobile device volumes for the same period were 255 million units based on Nokia’s preliminary estimate, representing a 14% year on year decrease and a 16% sequential decrease. The lower sales volumes for Nokia and the industry, both year on year and sequentially, were primarily driven by the negative impact of the rapidly deteriorating global economic conditions, including weaker consumer and corporate spending, severely constrained credit availability and unprecedented currency market volatility. The sequential volume decline also reflected typical seasonal decreases in the first quarter. In addition, extensive destocking by operators and distributors of their mobile device inventories adversely affected sales volumes by manufacturers, including Nokia, during the first quarter 2009.

Of the total industry mobile device volumes, converged mobile device industry volumes in the first quarter 2009 increased to 36.0 million units, based on Nokia’s preliminary estimate, compared with an estimated 33.3 million units in the first quarter 2008. Our own converged mobile device volumes were 13.7 million units in the first quarter 2009, compared with 14.6 million units in the first quarter 2008 and 15.1 million units in the fourth quarter 2008. We shipped approximately 5 million Nokia Nseries and over 3 million Nokia Eseries devices during the first quarter 2009.

The following chart sets out our mobile device volumes for the periods indicated, as well as the year on year and sequential growth rates, by geographic area.

NOKIA MOBILE DEVICE VOLUME BY GEOGRAPHIC AREA
(million units)	Q1/2009	Q1/2008	YoY Change	Q4/2008	QoQ Change
Europe	22.3	25.7	-13.2%	34.7	-35.7%
Middle East & Africa	14.8	20.2	-26.7%	18.2	-18.7%
Greater China	17.9	21.0	-14.8%	12.9	38.8%
Asia-Pacific	28.2	34.1	-17.3%	29.9	-5.7%
North America	3.4	2.6	30.8%	4.1	-17.1%
Latin America	6.6	11.9	-44.5%	13.3	-50.4%
Total	93.2	115.5	-19.3%	113.1	-17.6%

Based on our preliminary market estimate, Nokia’s mobile device market share for the first quarter 2009 was 37%, compared with 39% in the first quarter 2008 and 37% in the fourth quarter 2008. Our year on year market share decline was driven primarily by lower market share in Latin America, Middle East & Africa, Asia-Pacific and Greater China. This was partially offset by a slightly higher market share in North America and Europe. Sequentially, our market share declined in Latin America, Europe and Asia-Pacific, but these declines were offset by market share increases in Greater China, Middle East & Africa and North America.

In the first quarter 2009, our market share globally as well as regionally was distorted by extensive destocking by operators and distributors. This is due to the fact that our reported market share is based on the number of Nokia mobile devices shipped into the operator and distributor channels – not the number of Nokia mobile devices ultimately purchased by consumers during the quarter – as a percentage of overall mobile device purchases by consumers.

Our mobile device average selling price (ASP) in the first quarter 2009 was EUR 65, down from EUR 79 in the first quarter 2008 and down from EUR 71 in the fourth quarter 2008. Both the year on year and sequential declines were primarily due to general price pressure, a higher proportion of sales of lower priced products, and lower-than-expected device volumes in our Nseries range of high-end devices.

First quarter 2009 Devices & Services net sales declined 33% to EUR 6.2 billion, compared with EUR 9.3 billion in the first quarter 2008. At constant currency, Devices & Services net sales would have decreased 31%. The net sales decline resulted primarily from lower volumes, combined with the ASP decline, compared with the first quarter 2008. Of our total Devices & Services net sales, services contributed EUR 150 million in the first quarter 2009, representing 79% year on year growth and a 5% sequential decrease.

Net sales grew in Devices & Services year on year in North America. Net sales were down year on year in Latin America, Middle East & Africa, Europe, Asia-Pacific and Greater China.

Devices & Services reported gross profit and non-IFRS gross profit decreased 42% to EUR 2.1 billion, compared with EUR 3.6 billion in the first quarter 2008, with a reported and non-IFRS gross margin of 33.8% (38.5%). The year on year gross margin decrease was primarily due to a higher proportion of sales of lower end, lower margin devices and a lower proportion of sales of new high-end, higher margin devices, as well as general price pressure. The gross margin was flat sequentially, as the impact of the decline in ASP was offset by a reduction in the cost of sales.

Devices & Services reported operating profit decreased 71% to EUR 547 million, compared with EUR 1.9 billion in the first quarter 2008, with a reported operating margin of 8.9% (20.3%). Devices & Services non-IFRS operating profit decreased 67% to EUR 642 million, compared with EUR 2.0 billion in the first quarter 2008, with a non-IFRS operating margin of 10.4% (21.2%). The 67% year on year decrease in non-IFRS operating profit for the first quarter 2009 was due primarily to lower net sales compared with the first quarter 2008. The impact of lower net sales was somewhat mitigated by a reduction in our cost of sales and operating expenses during the first quarter 2009.