Nokia reports Q1 2005 net sales of EUR 7.4 billion and EPS EUR 0.19

 

The complete press release with tables is available at:

 

 

 

I was extremely satisfied with Nokia's overall first-quarter performance, which brought double-digit growth at the top line, including year-on-year sales growth for each of our four business groups. First-quarter operating cash flow was strong at EUR 1.3 billion, backed by good overall profitability.

 

According to Nokia estimates, year-on-year volume growth for the mobile device market in the first quarter came in ahead of expectations at 20%, with Nokia growing at about the same pace as the market. Despite some weakness in 3G devices at the industry level, this marked a strong start for the year and prompted an upward revision of our 2005 annual market volume estimate to about 740 million units.

 

In Nokia's own mobile device business, year-on-year volume growth during the quarter was fastest in China, which became our number one single market, followed by Asia Pacific and Europe/Middle East/Africa. However, volume declines in North America and Latin America were disappointing. In Asia, particularly China, we have focused on expanding our distribution and developing a competitive and quality product portfolio. In the Americas, we will continue working hard to strengthen and broaden our product offering.

 

I was really pleased to see solid average selling prices of 110 euro for the quarter in our mobile device business. This was supported by a greater share of high-end product sales from our multimedia and enterprise businesses.

 

In mobile infrastructure, we also had a very good quarter, with higher-than-expected profitability boosted by an excellent performance in March. Networks profitability was positively affected by a product mix favoring high-margined products, a less-than-anticipated share of sales from new growth markets and the collection of some previously provisioned customer receivables, all of which pushed margins ahead of expectations.

 

Nokia's operating margin of 15.1% reflects an excellent all-round performance from all areas of our business and gives us a solid platform to build on as the year unfolds.

 

INDUSTRY DEVELOPMENTS

Based on volume developments during the first quarter 2005, Nokia now expects the overall mobile device market for 2005 to reach about 740 million units, compared with our previous estimate of approximately 10% annual growth, from an estimated 643 million units in 2004. The overall market is also expected to grow in value, but to a lesser extent. Volume growth is expected to continue to be driven by replacement and upgrade sales in more developed markets, with the availability of new features, services and cameras, and by new subscriber growth in developing mobile markets.

 

In infrastructure, Nokia continues to expect the overall market in 2005 to be slightly up compared with 2004 in euro terms.

 

Second-quarter Nokia group net sales are expected to be in the range of EUR 7.9 billion to EUR 8.2 billion, compared with EUR 6.5 billion in the second quarter 2004.  EPS (diluted) is expected to be in the range of EUR 0.15 to EUR 0.18, compared with EPS (diluted) EUR 0.15 in the second quarter 2004, which included a positive impact of EUR 0.03 from special items.

 

 

Nokia's first-quarter 2005 net sales increased 17% to EUR 7.4 billion, compared with EUR 6.3 billion in the first quarter of 2004.  At constant currency, group net sales would have increased 19%. All business groups contributed to the year-on-year sales growth.

 

Nokia's first-quarter operating profit grew 10% year on year to EUR 1.1 billion, compared with the first quarter 2004 (EUR 1.0 billion) with an operating margin of 15.1% (16.1%). 

 

Operating cash flow for the quarter ended March 31, 2005 was EUR 1.3 billion, compared with EUR 0.9 billion in Q1 2004, and total combined cash and other liquid assets were EUR 12.6 billion, compared with EUR 11.5 billion at 31 December 31, 2004.  As of March 31, 2005, net debt-to-equity ratio (gearing) was -94%, compared with -79% at December 31, 2004.

 

For the first-quarter 2005, the total mobile device sales volume achieved by the Mobile Phones, Multimedia and Enterprise Solutions business groups reached 53.8 million units, representing a year-on-year rise of 20% and a sequential decline, mainly due to normal seasonality, of 19%.  Overall market volumes for the same period reached an estimated 170 million units, representing 20% annual growth and a 13% sequential decline. In smartphones, the total industry volume for the first quarter reached an estimated 10 million units, while Nokia's own smartphone volumes grew to 5.4 million units, compared with 1.8 million units in the first quarter 2004.

Global mobile subscription growth also continued, as total global subscriptions rose to an estimated 1.8 billion by the end of the quarter, backed by the ongoing strong momentum in new growth markets such as India, Russia, China and Brazil.

 

The following chart sets out Nokia's mobile device volume for the periods indicated, as well as the year-on-year growth rates, by geographic area.

 

NOKIA MOBILE DEVICE VOLUME BY GEOGRAPHIC AREA
(million units)	Q1  2005	Q1  2004	YoY Change (%)	Q4  2004
Europe, Middle-East & Africa	27.4	21.6	27	32.8
China	7.1	4.2	69	5.9
Asia-Pacific	10.6	7.4	44	10.4
North America	4.3	6.5	-33	8.0
Latin America	4.4	5.0	-12	9.0
Total	53.8	44.7	20	66.1

 

Nokia's year-on-year volume growth in China was positively affected by stronger seasonal market growth in the first quarter, and our expanding distribution system, competitive product portfolio, brand strength and quality products. In Europe/Middle East/Africa, market growth in the first quarter 2005, particularly in new growth markets, combined with an improved product portfolio, drove Nokia volumes, compared with the first quarter 2004.

 

However, in North America, and now in Latin America, Nokia's year-on-year volume decline primarily reflected operator migration from TDMA, which was a strong market for us in the first quarter 2004, to GSM and CDMA, where the company's relative position is not as strong.

 

Nokia's estimated market share for the first quarter was 32%, flat year on year and down compared with 34% in the fourth quarter 2004. Strong sequential market share gains in China, followed by Europe/Middle East/Africa, were more than offset by substantial market share losses in North America and Latin America. The seasonal strength of the Korean and Japanese markets in the first quarter 2005 also adversely impacted our market share, as Nokia does not have a material presence in those markets.

 

The average selling price for Nokia's mobile device business was EUR 110. This was supported by proportionally higher sales of high-end products from our multimedia and enterprise businesses in the first quarter 2005.

 

Mobile Phones: First-quarter 2005 net sales grew 11% year on year to EUR 4.5 billion, compared with EUR 4.1 billion in the first quarter 2004, driven by good demand. Sales growth was strongest in China, followed by Asia Pacific and Europe/Middle East/Africa, partially offset by sales declines in North America and to a lesser extent in Latin America. Operating profit decreased 16% to EUR 869 million, compared with EUR 1.0 billion in the first-quarter 2004, with an operating margin of 19.2% (25.2%). 

 

Multimedia: First-quarter 2005 net sales grew by 52% year on year to EUR 1.1 billion, compared with EUR 744 million in the first quarter 2004. Sales growth was strong in all areas except the Americas, with growth strongest in Europe/Middle East/Africa. Multimedia sales were driven by ongoing good demand for imaging smartphones.

 

The negative impact of the restructuring in Multimedia in the first quarter 2005 was EUR 15 million, which was significantly less than the previously announced range of EUR 60 to EUR 80 million. Multimedia first-quarter operating profit increased to EUR 155 million, compared with an operating loss of EUR 22 million in the first quarter 2004, with an operating margin of 13.7%, compared with -3.0% in the first quarter 2004, due to a strong performance in imaging smartphones sales.

 

Enterprise Solutions: First-quarter 2005 net sales increased 67% year on year to EUR 307 million, compared with EUR 184 million in the first quarter 2004, driven by healthy sales of enterprise devices. This also reduced our first-quarter 2005 operating loss to EUR 9 million, compared with an operating loss of EUR 35 million in the first quarter 2004. Enterprise Solutions first-quarter operating margin improved to -2.9%, compared with -19.0% in the first quarter 2004.

 

First-quarter 2005 net sales increased 6% year on year to EUR 1.4 billion, compared with EUR 1.3 billion in the first quarter 2004.  Sales were supported by capacity investments in more developed markets, particularly during March, with growth highest in Asia Pacific followed by Latin America, and to a lesser extent Europe/Middle East /Africa. Growth in these markets more than countered lower sales in China and North America.

 

Networks first-quarter 2005 operating profit reached EUR 221 million, compared with EUR 154 million in the first quarter 2004, with an operating margin of 15.4% (11.4%).  Profitability was positively affected by a product mix favoring high-margined products, a less-than-anticipated share of sales from new growth markets and the collection of some previously provisioned customer receivables, all of which pushed margins ahead of expectations.

 

Q1 2005 OPERATING HIGHLIGHTS

Nokia further renewed its mobile device offering in the first quarter with the announcement of 17 new models and first shipments of seven models.

 

In addition to an existing range of software customization options, we are providing our GSM operator customers with greater possibilities for mobile phone customization. During the first quarter, the Nokia 6101 folding camera phone became Nokia's first GSM mobile phone available in an exclusive operator design. China Mobile Communications Corporation also became the first to offer an exclusive operator design to the China market in the form of the Nokia 6102.

 

During the quarter, Nokia strengthened its mid-range portfolio of feature-rich, voice-centric handsets with the launch of three new products: the Nokia 6230i camera phone, which adds a megapixel camera, push-to-talk functionality and a built-in stereo music player to the highly popular Nokia 6230; the Nokia 6021, an affordable business-oriented phone with push-to-talk technology, voice activated dialing, enhanced connectivity and synchronization options with Bluetooth wireless technology; and the Nokia 6030, a dual-band phone with easy messaging functionality and advanced ergonomics. The Nokia 6101, 6230i and 6021 are expected to start shipping in the second quarter and the Nokia 6030 in the third quarter of 2005.

 

Nokia announced seven new CDMA handsets designed to strengthen and add depth to Nokia's CDMA product portfolio. These devices include the Nokia 2115i, an affordable phone targeting first-time and prepaid wireless users, the Nokia 3152, Nokia 3155 and Nokia 3155i, all mid-tier folding phones, and the Nokia 6152, Nokia 6155 and Nokia 6155i, folding camera phones with advanced features.

 

The Nokia 2115i is expected to start shipping in the second quarter, the Nokia 3152, Nokia 3155 and Nokia 3155i in the third quarter, and the Nokia 6152, Nokia 6155 and Nokia 6155i in the fourth quarter 2005.

 

We further expanded our 3G WCDMA product range with the launch and shipping of the Nokia 6680 megapixel smartphone. Equipped with two integrated cameras and a wide range of smartphone features, the Nokia 6680 is optimized for visual sharing. It also supports the Nokia XpressPrint printing solution for easy printing of images, e-mails and organizer information. Shipments of the Nokia 6680 started in March. Nokia also announced two EDGE-enabled megapixel smartphones, the Nokia 6681, designed for EDGE markets in Asia Pacific and Europe/Middle East/Africa, and the Nokia 6682, designed for the Americas EDGE markets.

 

In music, we made two important collaboration announcements during the quarter. Together with Loudeye Corporation, Nokia announced a mobile music platform for wireless operators. This platform enables operators to launch branded mobile music services for their customers with minimum effort and resources. Nokia also announced a long-term collaboration with Microsoft on digital media format support for Nokia handsets and Windows Media Players. This means consumers will be able to enjoy music from the mobile music solution offered by Nokia and Loudeye on both Nokia handsets and Microsoft® Windows® XP-based PCs. It will also allow for easy connection and content flow between them.

 

Nokia continued to work together with broadcasters and mobile operators to enable mobile TV services based on DVB-H. In addition to a pilot in Germany last year and ongoing trials in the US, Europe and Asia, a commercial mobile TV pilot was launched in Finland targeting 500 consumers in the capital area. In games, Nokia continued to launch N-Gage games with N-gage Arena features, such as multi-player gaming, competitions and chat.

 

Enterprise Solutions

During the first quarter, the Nokia 9500 Communicator and Nokia 9300 enterprise smartphone began shipping in volumes. Both these devices have been optimized to meet corporate IT demands for customized, manageable and secure mobile access to email and other enterprise software. In only a few months, these device sales have already exceeded more than 50% of the lifetime volume of the two preceding Communicator models. Third-party studies indicate that Nokia is establishing a strong share position in this market.

 

We announced a licensing agreement for Microsoft Corp's ActiveSync to enable a direct over-the-air synchronization link between Nokia enterprise mobile devices and the Microsoft Exchange Server 2003 for email and other personal information management (PIM) data. This supports Nokia's broader strategy of becoming the device of choice for mobile e-mail and messaging in the enterprise market and will expand our portfolio of email offerings, providing enterprise customers with the widest possible choice of email and PIM solutions on the market today.

 

Working closely with a number of our enterprise customers, we are piloting mobility solutions around the world to lay the ground for commercial deployments later in 2005. These pilots include innovative and cost effective approaches to different remote access or mobile connectivity solutions (IP Sec or SSL Virtual Private Networks, Mobile VPN) combined with security and applications such as mobile e-mail or Customer Relationship Management.

 

 

During the first quarter, Nokia won a WCDMA 3G contract with FarEastTone Telecommunications in Taiwan, reinforcing the company's position as the leading WCDMA supplier for the Taiwanese market. Nokia also signed a turnkey contract for EDGE expansion and a 3G core network deal with Pannon in Hungary, as well as a frame agreement for GSM/EDGE and WCDMA expansion with Polkomtel in Poland.

 

The company won GSM, GSM/GPRS or GSM/EDGE deals with Telecom Personal in Argentina, Jiangxi MCC in China, Ethiopian Telecommunications Corporation in Ethiopia, and with TeliaSonera in Sweden. Telecom Personal is a new GSM customer for Nokia.

 

Nokia announced a Push to talk over Cellular contract with Turkcell in Turkey. Eurotel in the Czech Republic and Hutchison in Hong Kong launched their commercial push to talk services using the Nokia solution. Nokia is leading the Push to talk over Cellular market, having delivered its solution to 30 operators around the world.

 

The company is increasing its focus on the growing services market in response to operator demand. In general most new and existing deals include a broad selection of services such as planning, implementation, systems integration, operation solutions, consulting and care services. 

 

Nokia won TETRA network deals in Abu Dhabi, France and Italy. At the beginning of April, the company announced it is in advanced talks with EADS, the European Aeronautic Defense and Space Company, on the sale of Nokia's Professional Mobile Radio business to EADS. The sale is still subject to regulatory approvals.

 

During the first quarter, Nokia introduced the Series 60 Platform 3rd Edition, supported by a complete set of developer tools and specifically targeted to support the mid-range expansion of the leading smartphone platform.

 

During the quarter, Nokia made several technology cooperation agreements with significant business partners. Two agreements were made with Microsoft concerning the compatibility of music formats in Nokia devices and personal computers, and the use of Microsoft ActiveSync protocol in the synchronization between select Nokia devices and Microsoft Exchange servers.

 

Nokia also announced with Macromedia that their Flash technology would be integrated into the Series 60 Platform as well as into other Nokia software platforms. Series 60 will also become a reference platform for Macromedia's mobile Flash technology.

 

Together with Real Networks, Nokia announced collaboration on RealAudio, RealVideo and Helix DNA licensing. Texas Instruments (TI) and Nokia announced an agreement whereby Nokia would start to implement TI's Digital RF Processor based single-chip solution into its mobile devices. The cooperation will allow Nokia to offer more cost-effective advanced handsets, especially in high-volume entry markets.

 

Forum Nokia strengthened its position as the world's largest mobile application developer community. At the end of March 2005, Forum Nokia had more than 1.9 million registered members.

 

The company launched several products for network technology evolution and convergence, including the Nokia Internet High Speed Packet Access (I-HSPA) solution, designed to bring higher performance and more cost-efficient broadband wireless access for high-volume packet data transfer.

 

The average number of employees during the first quarter 2005 was 55 557. At March 31, 2005, Nokia employed a total 55 393 people (55 505 people at December 31, 2004).

 

Nokia repurchased through its share repurchase plan a total of 54 000 000 shares on the Helsinki Stock Exchanges at an aggregate price of approximately EUR 651 379 000 during the period from January 28, 2005 to February 24, 2005. The price paid was based on the market price at the time of repurchase. The shares were repurchased to be used for the purposes specified in the authorization held by the Board. The aggregate par value of the shares purchased was EUR 3 240 000, representing approximately 1.16% of the share capital of the company and of the total voting rights. These new holdings did not have any significant effect on the relative holdings of the other shareholders of the company nor on their voting power.

 

On March 31, 2005, Nokia and its subsidiary companies owned 230 718 012 Nokia shares. The shares had an aggregate par value of EUR 13 843 080.72, representing approximately 4.95% of the share capital of the company and of the total voting rights. The total number of shares on March 31, 2005 was 4 663 761 300 and the share capital was EUR 279 825 678.

 

The Annual General Meeting on April 7, 2005 resolved to cancel shares repurchased during the past four quarters, a total of 230 million shares. The cancellation will be effected on April 22, 2005, reducing the total number of shares correspondingly.

 

 

 

 

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www.nokia.com

 

- Nokia will report 2Q results on July 21, 2005.