Managed Services

M&A Props Up NSN's Q3 Growth

Nokia Networks 's business continued to grow during the third quarter, thanks mainly to the new operations recently acquired from Motorola. The vendor reported revenues of €3.4 billion (US$4.67 billion), up 16 percent from a year ago, and an operating loss of €114 million ($157 million), a marked improvement year-on-year (see table below).

After one-time costs, NSN managed an adjusted operating profit of €6 million ($8.3 million) and its gross margin (after one-time costs) rose to 26.8 percent from 24.9 percent a year ago.

Table 1: NSN Key Financials Q3 2011
In millions of euros Q3 2010 Q3 2011 Y/Y change Q2 2011 Q/Q change
Revenues 2,943 3,413 16% 3,642 -6%
Reported operating profit -282 -114 60% -111 -3%
Adjusted operating profit* -116 6 -- 40 -85%
* excluding one-time costs and special items

The sales growth is coming mostly from the former Moto products and services, though. Parent Nokia Corp. (NYSE: NOK), which reports NSN's numbers and which recently committed additional funding to the joint venture, noted that "excluding the acquired Motorola Solutions networks assets, net sales would have increased 3% year-on-year," adding that the organic growth came mostly from the vendor's Global Services division, which generated half of NSN's revenues in the third quarter. (See Euronews: Cash Boost for NSN, Cuts at Nokia and New Leadership, Cash Injection for NSN.)

This puts the revenues from NSN's pre-acquisition business at roughly €3.03 billion ($4.16 billion), while the former Motorola assets, acquired for $975 million, contributed about €380 million ($522 million). (See NSN Finally Seals $975M Moto Deal.)

Those extra revenues are making a clear difference to certain parts of NSN's business, particularly in the Americas: Compared with a year ago, NSN's revenues in North America are up 74 percent, though that trend had been anticipated. (See NSN Expands in North America With Moto Buyout.)

Table 2: NSN Revenues by Region, Q3 2011
In millions of euros Q3 2010 Q3 2011 YoY change
Europe 1,070 1,074 Flat
Middle East & Africa 331 301 -9%
Greater China 311 302 -3%
Asia/Pacific 711 978 38%
North America 175 304 74%
Latin America 345 454 32%
Total 2,943 3,413 16%

NSN's sales growth looks less likely to continue into the final three-month period of the year, however. Fourth-quarter revenues are projected to be between €3.7 billion and €4 billion ($5.1 billion to $5.5 billion) compared with revenues of €3.96 billion ($5.44 billion) a year earlier. (See Signs of Growth at NSN.)

The vendor still expects to end the year having grown faster than the overall market and to report an adjusted operating profit for the full year.

Like its traditional rival Ericsson AB (Nasdaq: ERIC), NSN is focusing on mobile broadband, professional services and Service Provider Information Technology (SPIT) (particularly customer experience management solutions). (See Ericsson Sets the Pace in Q3 and NSN Gives Facebook a New Status.)

And the company has made significant headway in the early Long Term Evolution (LTE) market, boasting commercial deals with 44 operators. Of those engagements, 36 include radio access network (RAN) equipment, 22 include evolved packet core (EPC) and one includes IMS systems.

— Ray Le Maistre, International Managing Editor, Light Reading

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