Nokia Siemens Dips in Q4

Sales are down more than 5% from a year earlier as business falls away in Europe, but underlying operational indicators are encouraging

January 22, 2009

4 Min Read
Nokia Siemens Dips in Q4

It was always going to be a hard act to follow. One day after Ericsson AB (Nasdaq: ERIC) reported a blow-out fourth quarter, network infrastructure archrival Nokia Networks unveiled its comparable financials, and they couldn't match those of the giant Swede. (See Ericsson Soars on Strong Q4, Outlook and Ericsson: Mobile Sector Is Resilient.)

As usual, the Nokia Siemens Networks (NSN) numbers are included in the earnings report of parent Nokia Corp. (NYSE: NOK), which, in total, reported fourth-quarter revenues of €12.7 billion (US$16.5 billion), down a whopping 19.4 percent from a year earlier.

The main cause of that dip is Nokia's handset business, which saw sales fall by nearly 27 percent, compared with the fourth quarter of 2007, and device volumes fall 15 percent to 113.1 million. The reason for that slump is that, in the current global downturn, people aren't upgrading their mobile devices as often as they used to, a trend that has hit other device manufacturers. (See The Cellphone Slide.)

As a result of that trend, Nokia expects global industry mobile device sales (the total sold by all manufacturers) in 2009 to decline by 10 percent compared with 2008. Previously Nokia had forecast a decline of 5 percent.

But what about NSN?

Europe makes the difference
NSN reported fourth-quarter revenues of €4.34 billion ($5.64 billion), down 5.3 percent compared with the last three months of 2007 (a very good quarter for the vendor). Gross margin was 26.1 percent, down from 29.7 percent a year earlier. (See Nokia Siemens Ramps in Q4.)

Due to one-time charges, NSN reported a fourth-quarter operating loss of €179 million ($233 million), compared with a breakeven position a year earlier. (See Table 1.)

Table 1: Nokia Siemens Networks Q4 Results

All figures in millions

Q4 2008

Q4 2007

Y/Y change

Q3 2008

Q/Q change

Net sales

�4,338

�4,583

-5.3%

�3,503

+23.8%

Operating profit including charges

-�179

�0

Not applicable

-�1

Not applicable

Operating profit excluding charges

�225

�195

+15.4%

�177

+27.1%





Without the one-time charges, related to the formation of the company in 2007, NSN managed an operating profit of €225 million ($293 million), about 15 percent better than a year earlier.

Nokia's CFO, Rick Simonson, noted on today's earnings conference call that NSN was benefiting from its focus on operating cost reduction and deal discipline, and also from a greater proportion of higher-margin software sales. (See NSN's Big Squeeze, Nokia Siemens Gets Ruthless on R&D Focus, and Nokia Siemens CEO Slams 'Silly Pricing'.)

He added that the lower year-on-year sales were due to "tightened spending by carriers" and the streamlining of NSN's product portfolio. (See Nokia Siemens Dumps on GPON, 'Run Away!' Nokia Siemens Retreats From GPON, and NSN Sells Optical Unit.)

Simonson also noted that by the end of 2008, NSN had "achieved substantially all of the €2 billion [$2.6 billion] of targeted annual cost synergies" related to the formation of the company.

The main cause of NSN's fall in revenues was its performance in Europe, where the vendor recorded a 20 percent drop in sales to €1.64 billion ($2.13 billion). The vendor also reported lower year-on-year revenues in China and North America.

Sales were up in the Asia/Pacific, Latin America, and Middle East and Africa regions. (See Table 2.)

Table 2: Nokia Siemens Networks Q4 Sales by Region

All figures in millions

Q4 2008

Q4 2007

Y/Y change

Q3 2008

Q/Q change

Europe

�1,636

�2,045

-20%

�1,358

+20.5%

Middle East & Africa

�615

�541

+13.7%

�424

+45%

Greater China

�409

�492

-16.9%

�288

+42%

Asia/Pacific

�967

�838

+15.4%

�894

+8.2%

North America

�198

�243

-18.5%

�150

+32%

Latin America

�513

�424

+21%

�389

+31.9%

Total

�4,338

�4,583

-5.3%

� 3,503

+23.8%





For the full year, NSN reported revenues of €15.3 billion ($19.9 billion) and an operating loss, including one-time charges, of €301 million ($391 million). Excluding those one-time charges, NSN managed an operating profit in 2008 of €757 million ($983 million).

NSN reiterated its forecast for the overall telecom infrastructure market (including associated services) in 2009, which it expects to decline by 5 percent or more compared with 2008. (See Nokia Siemens Braced for Tough 2009.)

— Ray Le Maistre, International News Editor, Light Reading

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