Strong volume growth and excellent profitability in mobile phones - Nokia meets third-quarter sales and EPS targets

Highlights: 3Q 2003 (all comparisons are year on year)

- Net sales declined 5% to EUR 6.9 billion (up 4% at constant currency).

- Nokia Mobile Phones sales were flat at EUR 5.6 billion (up 9% at constant currency).

- Nokia Networks sales declined 21% to EUR 1.2 billion.

- Nokia gains market share with 23% volume growth; industry mobile phone volume growth accelerates to 15%.

- Nokia third-quarter mobile phone market share grows to 39%.

- Company doubles share of global CDMA handset market.

- Excellent pro forma and reported operating margins in mobile phones at 22.4% and 22.0%.

- Nokia Networks achieves breakeven.

- Nokia announces new operating structure for 2004.

- Pro forma EPS (diluted) was EUR 0.18. Reported EPS (diluted) was EUR 0.17.

- Strong operating cash flow in the third quarter at EUR 1.2 billion.

 

 

The third quarter brought a sharp increase in mobile phone volumes for Nokia. Mobile phone market volumes rose an impressive 15% year on year for the quarter to 118 million units, while Nokia's own volume growth accelerated even more sharply, rising by 23% to 45.5 million units. The mobile phone market has continued to strengthen throughout the year, and we now expect overall industry volume for 2003 to be about 460 million units.

 

During the quarter, we saw our overall mobile phone market share rise to 39%, up from 36% in the same quarter last year. In addition to our ongoing strength in Europe, we established clear leadership in the US and the Americas markets. In China, we have now gained the leading position in the GSM market, and see ourselves strongly positioned to achieve overall market leadership there.

 

Following an announced commitment two years ago to strengthen our position in the global CDMA handset market, I am very happy to see that we have now doubled our share to the mid teens from the same quarter last year. We expect to see continued momentum in CDMA going into the fourth quarter as we increase shipments to China, India and all major US CDMA operators.

 

Recent months have marked our entry into a number of new and exciting areas of mobility. We have introduced several camera phones, begun shipments of games devices and announced half a dozen phones for new growth markets.

 

The Nokia N-Gage has just gone on sale at 30,000 stores around the world to a very positive initial consumer response. Many outlets sold out of the device during the first day of release. Following on from this, we are seeing strong order intake from distributors and retailers. In September, we launched our second 3G model, the Nokia 7600. Aside from its radical and innovative design, the Nokia 7600 will be the smallest and lightest dual-mode WCDMA phone on the market when shipments begin in the fourth quarter.                                                                        

                                                                        (continued after tables)

 

- All pro forma figures for the third quarter can be found in the tables on page 8. A reconciliation of the pro forma figures to our reported results can be found in the table on page 11.

- Pro forma adjustments for the third quarter 2003 consisted of amortization of goodwill EUR 38 million.

 

- All pro forma figures for the period January to September can be found in the tables on page 9. A reconciliation of the pro forma figures to our reported results can be found in the tables on page 11.

 

 

In our mobile networks business, we began seeing evidence of the market stabilizing. The financial situation among our operator customers also appears to be improving. During the quarter, for example, major global and Western European operators began reconfirming their commitment to WCDMA in terms of strengthening their network rollout capability. The 27,000 base stations we have cumulatively supplied now make us the market leader in WCDMA radio access networks.

 

In a move to further align Nokia's structure with our strategy, we have made the decision to reconfigure Nokia into new highly interdependent parts from January 2004. Combined, our four business groups - Mobile Phones, Multimedia, Networks and Enterprise Solutions - will form an offering that we believe no other industry player can match. New horizontal entities will work very closely with all business groups.

 

Under this new organization, we will be addressing emerging business areas in the world of mobility, while continuing to build on leadership in mobile voice communications. This will allow us to focus on each business segment with the right dynamics, while at the same time achieving economies of scale that we believe will go far beyond any levels previously seen in this industry. We are very excited about this change and feel confident that it will allow us to better serve our consumer, operator and enterprise customers.

 

Mobility is one of the great mega-trends of our time. It is changing how we live our lives and how businesses are run. Under our new operational structure, we are poised to seize the opportunity of the next growth wave in this industry and bring the benefits of mobility to consumers, companies and communities across the board.

 

 

Nokia's third-quarter net sales of EUR 6.9 billion were down 5%, compared with the third quarter 2002. On a constant currency basis, group net sales would have been up 4% year on year.

 

Mobile phone net sales in the third quarter were flat year on year, in line with guidance, reaching EUR 5.6 billion. Strong net sales growth in the Americas, including the US, was virtually offset by flat sales in the Europe/Middle East/Africa region and lower sales in Asia Pacific. While mobile phone volumes grew by 23%, sales were adversely affected by a weak US dollar. On a constant currency basis, mobile phone net sales would have grown 9% year on year. Sales were also affected by an increased proportion of entry-level phone sales across all regions, with the Americas and emerging markets such as India and Russia, where entry-level phones predominate, accounting for an increased share of Nokia's sales volumes.

 

Net sales in Nokia Networks were EUR 1.2 billion, down by 21%. On a constant currency basis, net sales would have decreased by 13% year on year. While sales grew slightly in the Americas, they were more than offset by lower sales in Europe and Asia Pacific, compared with the third quarter 2002. 

 

Industry mobile phone volume growth accelerated during the quarter, rising 15% year on year. Nokia's own volume growth was significantly stronger at 23%, reaching 45.5 million units. This faster-than-market growth was driven by gains notably in the global CDMA market and in the Americas across all technologies.

 

Nokia grew its overall mobile phone market share year on year from 36% to 39%, maintaining its share at the second quarter, 2003 level.

 

Third-quarter pro forma operating profit for the Nokia group declined by 2% year on year to EUR 1.1 billion. Pro forma net profit for the group also declined by 2% year on year to EUR 861 million. Pro forma EPS (diluted) for the Nokia group reached EUR 0.18, at the high end of guidance given in conjunction with the company's mid-quarter update in September. 

 

Pro forma operating profit at Nokia Mobile Phones was virtually unchanged from the third quarter last year, at EUR 1.2 billion, while pro forma mobile phone operating margins continued at excellent levels of 22.4%. Profitability was largely driven by the company's continued strong product competitiveness and operational efficiency.

 

Nokia Networks generated a small pro forma operating profit of EUR 19 million and a positive pro forma operating margin of 1.6% in the quarter, as the company began to see the benefits of increased efficiencies generated by recent restructuring measures.

 

Nokia's cash position remained exceptional, with total available cash at EUR 10.8 billion by the end of the quarter.

 

Net sales of Nokia Mobile Phones in the fourth quarter are expected to be flat or slightly up year on year, muted by a major depreciation of the US dollar, compared with the same period in 2002. Profitability at Nokia Mobile Phones is expected to continue to be strong.

 

In Nokia Networks, the company estimates fourth-quarter net sales of approximately EUR 1.4 billion, with pro forma operating profit expected to reach breakeven.

 

Nokia expects fourth-quarter pro forma EPS (diluted) to be in the range of EUR 0.21 and EUR 0.23, while reported EPS (diluted) is expected to be between EUR 0.20 and EUR 0.22.

 

In the overall mobile phone industry, Nokia estimates fourth-quarter, year-on-year industry volume growth to be in the mid teens, with Nokia's own volumes clearly growing faster than the market. For the full year 2003, Nokia now expects overall industry volume to be about 460 million units. The company's own full-year unit volume growth is estimated to outpace that of the market.

 

Nokia continues to expect the overall network infrastructure market to decline by 15% or more for the full year 2003.

 

Nokia announces new operating structure from January 2004

In a move to further align the company's overall structure with its strategy in an increasingly complex operating environment, from January 1, 2004, Nokia will be reconfigured into four business groups: Mobile Phones, Multimedia, Networks and Enterprise Solutions. Units focusing on strategy, research, venturing and business infrastructure will also contribute to both the strategic strengths and operational excellence of all businesses.

 

Renewal has always been an important part of Nokia's identity and values. Under the new structure, each business group will be positioned to meet the dynamics of various specific market segments, while the introduction of companywide horizontal entities is designed to further increase Nokia's efficiency and competitiveness.

 

 

 

 

 

Media and Investor Contacts:

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-The Annual General Meeting is scheduled to be held on March 25, 2004.

 

The complete press release with tables is available at http://www.nokia.com/2003/3Q/index.html