APAC Boosts NSN's Q3

Nokia Networks received welcome respite from a punishing global market with a boost from Asia/Pacific to its sales and margins during the third quarter.

The vendor reported revenues of €3.5 billion (US$4.6 billion), up 3 percent year-on-year and up 5 percent compared with the second quarter.

Table 1: Nokia Siemens Networks Q3 2012 Key Financials

In millions of euros	Q3 2011	Q3 2012	Y/Y change	Q2 2012	Q/Q change
Revenues	3,413	3,501	3%	3,343	5%
Reported operating profit	-114	182	na	-227	na
Adjusted operating profit*	6	323	Significant	27	350%
* Excluding one-time costs and special items na = not applicable

The company, which has its financial results reported as part of Nokia Corp. (NYSE: NOK)'s earnings, benefited from favorable changes in currency exchange rates: It noted that at constant currency rates its year-on-year revenues would have been down 3 percent and up by just 1 percent quarter-on-quarter. (See Euronews: Nokia Can't Stop Devices Slide.)

The increase in reported year-on-year revenues was primarily due to an increase in network infrastructure and services revenues from Asia/Pacific, particularly Japan. Sales in that region (not including China) were up 29 percent from a year ago to nearly €1.27 billion ($1.66 billion).

More importantly, though, NSN is improving its gross and operating margins. Its third-quarter gross margin (after one-time costs) hit 32.2 percent, up from 26.8 percent a year ago, helped, the company noted in its press release, by "unusually favorable product and regional mix towards higher gross margin revenues, particularly in infrastructure equipment [in]... priority markets including Japan and Korea."

NSN's operating margin (again after one-time costs) hit 9.2 percent compared with 0.2 percent last year.

A major contributor to the improved operating margin is NSN's reduced cost base. The vendor's operating expenses dipped by 15 percent year-on-year to €797 million ($1 billion), mainly due to lower staffing costs: The company ended September with 60,600 staff, a headcount reduction of 14,300 compared with the same time a year ago. NSN announced its restructuring program in November 2011. (See NSN Could Lose More Than 17,000 Staff.)

NSN expects its operating margin in the fourth quarter to be around 8 percent, though it could be up to 4 percentage points higher or lower, the vendor notes.

NSN's news comes only days after ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) announced a drastic third-quarter loss that has sparked a company-wide review. (See ZTE Reports Losses, Plans Closures.)

— Ray Le Maistre, International Managing Editor, Light Reading