Ethernet equipment

Nokia Siemens Ramps in Q4

After a troubled start to its life, mega-vendor Nokia Networks seems to be finding its feet.

The infrastructure joint venture, formed on April 1 last year, today reported a sequential 25 percent leap in revenues during the final three months of last year and managed, at least for the time being, to end its post-birth run of quarterly operating losses. (See Nokia Reports Q4.)

As the equipment outfit's financials are reported as part of parent Nokia Corp. (NYSE: NOK)'s earnings statements, its progress was somewhat overshadowed by the butt-kicking performance of the Finnish giant's mobile handset business line. (See Nokia Grabs 40% Handset Share.)

But the progress of Nokia Siemens Networks (NSN), which was forced to revamp its restructuring and product development plans only months after opening its doors for business, is clear to see in the published numbers. (See Nokia Siemens Suffers Merger Blues and Instant Revamp for Nokia Siemens.)

In the fourth quarter, NSN generated revenues of €4.58 billion (US$6.8 billion), reported gross margins of 29.7 percent (up sequentially from 28.3 percent), and broke even at the operating profit level after various one-off charges and restructuring costs. That operating breakeven figure also included a one-time €53 million ($78 million) gain from property sales -- NSN has reduced its real estate portfolio by 270 buildings during the past nine months.

Without those charges, costs, and gains, NSN's operating profit was €195 million ($287 million), for an operating margin of 4.3 percent.

The fourth quarter's improved revenues, the company noted in its press release, reflected "seasonally strong end-of-year expenditures by operators" and "a favorable outcome from the assessment of certain acquired contracts," though the company didn't provide any details on those contracts.

"Nokia Siemens Networks continued to see positive momentum," noted Nokia's CEO Olli-Pekka Kallasvuo during today's earnings conference call, "but much is still needed to be done to reach our ambitions."

Certainly something needs to be done in the Asia/Pacific market (excluding China), where NSN's revenues have slipped by more than 29 percent from the second quarter to the fourth quarter, dipping from nearly €1.2 billion ($1.77 billion) to below €840 million ($1.24 billion).

Every other regional market has recorded growth during the same period, with European revenues, which accounted for nearly 45 percent of all NSN sales in the final three months of 2007, increasing by more than 72 percent from the second quarter to the fourth.

Table 1: Nokia Siemens Revenues by Region, Q2-Q4 2007
Revenues, millions of euros 4Q07 3Q07 Q4 over Q3 change % 2Q07
Europe 2,045 1,500 +36.3 1,186
Middle East & Africa 541 448 +20.8 369
China 492 372 +32.3 294
Asia/Pacific (ex. China) 838 849 -1.3 1,183
North America 243 152 +59.9 164
Latin America 424 353 +20.1 242
Total 4,583 3,674 +24.7 3,438
Source: Nokia

The fourth quarter's breakeven position compares favorably with the third quarter's operating loss (including charges) of €120 million from revenues of €3.67 billion, and the second quarter's operating loss of €1.27 billion from revenues of €3.44 billion. (See NSN Improves, Confirms Extra Cuts.)

Those second- and third-quarter results dragged NSN's full year operating loss to €1.3 billion ($1.9 billion) from revenues of €13.4 billion ($19.7 billion). The full year 2007 financials include the first-quarter results from Nokia's infrastructure business before it was merged with the Siemens Communications group.

CFO Rick Simonson noted that NSN is on track to deliver the €2 billion ($2.95 billion) in cost savings planned by the end of 2008, and that 4,200 jobs have been cut since April 1, 2007. "The fourth quarter shows that NSN is heading in the right direction in a challenging industry environment," Simonson told analysts.

The CFO also noted that Nokia Siemens expects the telecom infrastructure market to grow very slightly during 2008 (in euros), and that NSN is set to grow faster than the overall market. CEO Kallasvuo pointed to NSN's recent acquisitions of Ethernet equipment firm Atrica and the yet-to-be-completed takeover of IP Multimedia Subsystem (IMS) systems vendor Apertio Ltd. , plus some major contract awards, as signs of NSN's recovery and growth prospects. (See Nokia Siemens Snaps Up IMS Vendor, Nokia Siemens to Acquire Atrica, NSN Touts Tier 1 4G Trials, DT Outsources to NSN, and NSN Lands Monster Saudi Deal.)

— Ray Le Maistre, International News Editor, Light Reading

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