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Networks Shine at Nokia

Light Reading
LR Mobile News Analysis
Light Reading
1/27/2005

Nokia Corp.'s (NYSE: NOK) revived networks business continues to light up the Finnish vendor’s long winter nights, with the division reporting a 12 percent year-on-year increase in fourth-quarter sales (see Nokia Ups Sales).

The company today announced quarterly network sales of €1.9 billion (US$2.5 billion), generating operating profit of €260 million ($339 million) and an operating margin of 13.6 percent.

In contrast, net sales at its mobile phone division decreased 6 percent year-on-year to €5.7 billion ($7.3 billion). Operating profit in this division fell 38 percent to €1.06 billion ($1.4 billion).

Total company sales increased 3 percent year-on-year to €9.06 billion ($11.8 billion), but net profit fell 13 percent to €1.02 billion ($1.3 billion).

“Network sales exceeded our plans in all geographic areas,” CEO Jorma Ollila told analysts in a conference call. “Profitability was clearly higher than we had anticipated.”

Such results were also ahead of market expectations. “Networks revenue of €1.9B was ahead of our estimate of €1.7B [$2.2 billion] due to a stronger than expected year-end budget flush by operators,” wrote Lehman Brothers analysts in a research note. “Reported EPS €0.23 [$0.30] was well ahead of our €0.19 [$0.25] and guidance of €0.16 - €0.18 [$0.21 - $0.23].”

Looking ahead, Nokia’s Ollila expects the infrastructure market “to grow slightly” compared with 2004, but he fired a warning shot for the immediate future.

“In the short term we expect downward pressure in the network division’s operating margin as the impact on sales from new geographic markets gets more pronounced... We have communicated the networks margin target of 14 percent in the next two to three years, but in the short term we will see slightly lower levels.”

Nokia shares had risen 6.05 percent to €11.63 ($15.15) per share at press time.

— Justin Springham, Senior Editor, Europe, Unstrung

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