Nokia Holds Steady in Q2, Raises Outlook

In a week of turmoil for the Finnish technology sector, the new-look Nokia, which began its new life in late April, has provided some stability with the publication Thursday morning of its second-quarter financials and outlook for the rest of the year. (See Nokia Ushers In New Era, Retires NSN Name.)

With much of the recent focus on the job cuts at the former mobile devices business, Nokia Corp. (NYSE: NOK)'s three remaining business units have not only delivered solid if unspectacular results, but have also given cause for conservative optimism as operating profits continue to creep up. (See Expect Further Cuts at Microsoft Devices – Analyst and Microsoft to Axe 12,500 Ex-Nokia Employees.)

Nokia reported second-quarter revenues of €2.94 billion (US$4 billion), down 7% from a year ago (mainly due to strategic exits from certain areas of business) and up 10% sequentially. Its gross margin (before the impact of one-time costs) was steady at 44%, while operating profits were up significantly compared with a year ago at €284 million ($383 million) and were much better than anticipated.

Table 1: Nokia Q2 2014 Key Financials

In Euros millions Q2 2014 Q2 2013 Change Q1 2014 Change
Revenues 2,942 3,155 -7% 2,664 10%
-- Of which Networks 2,566 2,781 -8% 2,328 10%
-- Of which HERE 232 233 0% 209 11%
-- Of which Technologies 147 145 1% 131 12%
Gross margin 44.0% 43.6% Increase of 0.4 of a percentage point 45.7% Decrease of 1.7 percentage points
Operating profit 284 12 Massive! 242 17%
Source: Nokia

Nokia Networks , which accounts for 87% of sales, reported revenues of €2.57 billion ($3.5 billion), down 8% from a year ago. That decline is largely due to the company's decision to exit unprofitable professional services deals: Global Services revenues decreased by 19% to €1.19 billion ($1.6 billion) compared with the second quarter of 2013, while Mobile Broadband infrastructure revenues were up 6% from a year ago at €1.36 billion ($1.83 billion).

The company added that excluding currency exchange fluctuations and the divestment/exit of various accounts and business lines, like-for-like Networks revenues would have been up by 1% from a year ago.

The vendor said the year-on-year increase in mobile broadband revenues was attributable to "strong net sales growth in both LTE and core networks," partially offset by lower sales of 2G and 3G radio access equipment. Nokia also noted that revenues were "adversely affected by shortages of certain components," but that the impact was not as bad as in the first quarter.

On a geographic basis, Networks revenues were down in most regions compared with a year ago, with Asia-Pacific and China in particular the exceptions: Second-quarter revenues in China increased by 18% year-on-year to €306 million ($412 million) due to the roll-out of LTE TDD networks.

The vendor says it "further strengthened its position as the top non-Chinese vendor" for 4G network rollouts in China by becoming "the only non-Chinese vendor to win a double-digit unit share in the second phase" of China Mobile's LTE TDD tender. (See Nokia Networks Boasts China Mobile 4G Deals.)

Want to know more about 4G LTE? Check out our dedicated 4G LTE content channel here on Light Reading.

Now Nokia expects its infrastructure business to pick up momentum. The company said it expects Networks revenues to be better during the second half of 2014 compared with the same period a year earlier, and believes its operating profits will exceed previous expectations. There are a number of factors expected to affect Nokia's second-half revenues, including "a higher proportion of major new network deployment projects."

And as if to hammer home that point, the company also announced Thursday morning a three-year 4G infrastructure and professional services deal with Telefónica SA (NYSE: TEF), which will see Nokia Networks act as the "key supplier" in the regions of Andalusia, Galicia, Castilla Leon and Levante.

Investors liked that positive outlook, as Nokia's share price jumped by 7.5% to €6.15 in morning trading on the Helsinki exchange.

Revenues at Nokia's other two businesses, HERE (mapping and location applications) and Technologies (intellectual property licensing) were in line with a year ago.

Two of Nokia's key rivals, Ericsson and Huawei, have also unveiled financial details during the past week. (See Ericsson Leaps on Q2 Margin Boost , Ericsson's Network Boss Outlines Top Priorities, Huawei Boosts H1 Revenues by 18% and Huawei Unveils H1 Revenues.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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Kruz 8/20/2014 | 9:08:55 AM
Re: Unspectacular, but.... What is certain is that Nokia employees do.
pcharles09 8/19/2014 | 5:25:39 PM
Re: Unspectacular, but.... @Kruz,

I wonder if Nadella rues the day MSFT acquired the Nokia units.
Kruz 8/2/2014 | 1:57:30 AM
Re: Unspectacular, but.... I do blame both, Nokia for failing to go with the Android trend and MSFT for hijacking Nokia, in a way, leaving the company with few choices.
pcharles09 7/31/2014 | 7:24:24 PM
Re: Unspectacular, but.... @Kruz,

MSFT was slow to adapt too as well as get into the mobile game. I guess the two were made for wach other.
Kruz 7/31/2014 | 9:53:42 AM
Re: Unspectacular, but.... Nokia thought it was a flagship device, consumers didnt follow. Nokia/MSFT has yet to understand the changing needs of the market. 920 is bulky and you could feel it in the pocket, for example. Nokia was too slow to adapt for example.
pcharles09 7/31/2014 | 9:33:54 AM
Re: Unspectacular, but.... @Kruz,

Alot of people thought that 'flagship' device was going to be the Lumia 920. I don't think that turned out to be the case so they're back to the drawing board... again.
Ariella 7/30/2014 | 2:27:22 PM
Re: Unspectacular, but.... @Liz makes sense. One type phone does not fit all. 
Liz Greenberg 7/30/2014 | 1:20:15 PM
Re: Unspectacular, but.... @Ariella, as I said to Kruz this really needs to be a focus for MSFT.  The perception that their products are either behind, too difficult, unstable or whatever has to be overcome.

Case in point, I took a friend to get her first smartphone.  Her son was convinced that she should get an Android device.  Luckily I had taken her shopping a week before and told her, "Try every device and see what one clicks with your brain.  One of them will be superior to you."  She soundly rejected Apple it was too hard for her eyes and her fingers (she is 62 and Taiwanese).  She then tried all the Android products, easier for her eyes and fingers but it didn't make sense to her.  So then she tried the various Nokia devices and ended up loving the 1520, it worked for her eyes, her fingers and her brain. 

Her son thought she was nuts and would never learn something "so difficult to use".  Fast forward, she loves it, enjoys learning all the things that it can do, texts with her kids and family, uses the mapping etc. 

A long post but the point is that MSFT needs to find a way to appeal to people by making the obvious obvious (not a typo).  Every OS exists for a reason and has capabilities that the others do not.  It is up to the manufacturers to make them known.
Liz Greenberg 7/30/2014 | 1:13:03 PM
Re: Unspectacular, but.... You are absolutely right @Kruz...MSFT has everything to lose if they can't convince the average user that their products are equal to or better than their competition.  Unfortunately, I don't think that they have hired anybody who can figure out how to make their products "cool" to the younger set that has been weaned from birth on Apple or Android products.
Ariella 7/30/2014 | 12:59:09 PM
Re: Unspectacular, but.... @Liz you touched on the sad reality that you can have a superior product but still not sell it well just because of the marketing. 
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