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NSN Improves, Confirms Extra Cuts

Ray Le Maistre
10/18/2007

Nokia Networks improved its overall revenue and operating profit performance in the third quarter, but the vendor will still be subjected to further cost cuts that will reduce its annual operating expenses by €500 million (US$713 million) by the end of 2008.

Confirmation of the further cost cutting, which is in addition to the €1.5 billion ($2.14 billion) in cost savings originally planned when Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE) created their telecom infrastructure joint venture earlier this year, was announced today as Nokia reported its third-quarter earnings. (See Nokia Reports 3Q07.)

Nokia announced in early August that it was seeking extra efficiencies after Nokia Siemens Networks (NSN) reported a poor set of results for its maiden quarter of business. (See Nokia Siemens Suffers Merger Blues and Instant Revamp for Nokia Siemens.)

Nokia also said today it was updating its estimate of the charges associated with cost cutting at NSN. Those costs are now set to rise from an initial €1.5 billion to slightly more than €2 billion ($2.85 billion). Nokia said the charges include "the potential need to further refine Nokia Siemens Networks' product portfolio in a way not previously identified at the formation of Nokia Siemens Networks on April 1, 2007." (See Nokia Siemens Reveals Product Picks.)

Nokia has already recorded nearly half of the €2 billion restructuring costs, and says it will record most of the remaining charges in the fourth quarter.

NSN improves
At last there are some positives for NSN, which generated €3.67 billion ($5.3 billion) in revenues in the three months ending September 30. That's up nearly 7 percent from the second quarter's €3.44 billion ($4.9 billion).

Sales were up in Europe, the Middle East and Africa, China, and Latin America, but down in North America and Asia/Pacific (not including China). (See table below.)

Table 1: Nokia Siemens Networks Revenues: Q3 vs Q2

� millions Q3 2007 Q2 2007 QoQ change
Europe 1,500 1,186 25.9%
Middle East and Africa 448 369 21.3%
China 372 294 26.4%
Asia/Pacific (exc. China) 849 1,183 -27.8%
North America 152 164 -7%
Latin America 353 242 46%
Total 3,674 3,438 6.9%
Source: Nokia




The North American market has been hitting all the major vendors' financials in recent months. (See Profit Warning Slams Ericsson , AlcaLu Cuts 2007 Outlook by $1.25B, and AlcaLu: Pressure Is Still On.)

NSN's third-quarter operating loss was €120 million ($171 million), including €86 million ($123 million) of restructuring and one-time charges. Without those charges, the operating loss was €34 million ($48.5 million).

That's a marked improvement from the second quarter, when the operating loss was €1.27 billion ($1.8 billion) including charges and €361 million ($515 million) without charges.

NSN said the improvement was due to higher sales and the absence of an inventory value adjustment that affected the second quarter only.

The vendor is due to provide further details about the third quarter in a conference call that begins at 8am Eastern time today.

— Ray Le Maistre, International News Editor, Light Reading

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