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Nokia Siemens Posts Blow-Out Q2

Nokia Networks put its first year of integration and growing pains behind it today with second-quarter revenues and margins that far exceeded financial analyst expectations. (See Nokia Reports 2Q08.)

The infrastructure, software, and services firm, which reports its results as part of parent Nokia Corp. (NYSE: NOK)'s earnings release, reported second-quarter revenues of €4.07 billion (US$6.45 billion), an 18 percent improvement compared with a year earlier (its first quarter of operations), and 20 percent better than the first quarter of this year. (See Nokia Siemens Suffers Merger Blues and NSN Hunkers Down.)

Nokia's handset business, though, didn't perform as well: Its sales, at €9.1 billion ($14.4 billion) were down 1 percent year on year, and down 2 percent compared with the first quarter of this year. But those numbers were in line with expectations, and were accompanied by an upbeat outlook from Nokia CEO Olli-Pekka Kallasvuo, who stated in the company's official earnings release that the vendor had increased its device market share.

He also said Nokia was optimistic for the rest of the year and had received "good feedback about the broad range of new products we expect to sell in our device business. In the second quarter we saw good momentum in the early stages of our services and software business, and we believe that the next wave of growth will be driven by devices linked with services."

That assessment sent Nokia's share price up by 7.5 percent to €16.94 on the Helsinki exchange.

Nokia Siemens in detail
Nokia Siemens put its 18 percent sales leap down to last year's poor second quarter, but financial analysts hadn't expected much more than a few percentage points in growth. For example, analysts at Dresdner Kleinwort had anticipated Nokia Siemens revenues to grow by just 1 percent.

And the vendor almost reached an operating profit. Its operating loss (including one-time costs and special items) was €47 million ($74.5 million), a dramatic improvement from last year's €1.27 billion ($2 billion) operating loss.

Excluding the one-time costs and special items associated with the ongoing integration process, Nokia Siemens achieved an operating profit of €154 million ($244 million), compared with a loss a year earlier of €361 million ($572 million).

Gross margins also improved dramatically to 28.2 percent from 15.5 percent a year ago. The second-quarter gross profit was €1.1 billion ($1.74 billion), up from €534 million ($846 million) a year ago.

Year-on-year revenue growth was strongest in Latin America, followed by the Middle East and Africa, Greater China, and Europe. However, revenues were down in Asia/Pacific and North America. (See table below.)

Table 1: Nokia Siemens Revenues by Region (in � millions)
Q2 2008 Q2 2007 YoY change Q1 2008 QoQ change
Europe 1,412 1,186 +19.1% 1,212 +16.5%
Middle East & Africa 553 369 +49.9% 448 +23.4%
Greater China 413 294 +40.5% 269 +53.5%
Asia/Pacific 1,076 1,183 -9% 944 +14%
North America 158 164 -3.70% 192 -17.7%
Latin America 455 242 +88% 336 +35.4%
Total 4,067 3,438 +18.3% 3,401 +19.6%
Source: Nokia




The company, which is implementing a tough product selection policy and vowed to invest only where it can make money and be a market leader, says it's on course to achieve its target of delivering €2 billion ($3.2 billion) in annual cost savings by the end of this year. (See Nokia Siemens Gets Ruthless on R&D Focus, 'Run Away!' Nokia Siemens Retreats From GPON, IPTV Roundup: What's With NSN? , Nokia Siemens CEO Slams 'Silly Pricing', Major Vendors Kiss OSS, and NSN Unveils Unified Optical Platform.)

And it's had a busy past few months, making progress with its flat mobile architecture push, winning NGN rollout deals, and landing a major mobile infrastructure contract in China as the vendor's new head of mobile guns for archrival Ericsson AB (Nasdaq: ERIC). (See Colt Unveils NGN Vendors, Mobile Coup for NSN, Embarq Outsources to NSN, O2 Germany Upgrades With NSN, Chunghwa Goes Flat, NSN Flattens 3G Network Design, and Rouanne Has Ericsson in His Sights.)

— Ray Le Maistre, International News Editor, Light Reading

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