Nokia reports Q2 2005 net sales of EUR 8.1 billion and EPS EUR 0.18

 

The complete press release with tables is available at:

 

 

 

I was very happy to see strong overall sales growth of 25% year on year for the quarter, with even higher sales growth coming from our mobile device business. At the same time, Nokia's EPS grew by 20% compared with the second quarter of the previous year.

 

In our mobile device volumes, we also saw year-on-year growth of 34%, which pushed our market share in mobile devices up to an estimated 33%. This clearly showed our ability to capitalize on good industry volume momentum in emerging markets as well as maintain our leading position in the high-end smartphone market.

 

Overall industry volumes were slightly higher than we expected, prompting us to upgrade our full-year market estimate by 20 million to about 760 million units.  But as this growth came primarily from emerging markets where low-end products predominate and pricing pressures are currently intense, industry average selling prices continued to edge downwards. This was certainly the case for Nokia in the second quarter, which in turn impacted our profitability. We currently believe these trends will continue for both the industry and Nokia for the remainder of the year.

 

New products and operational efficiency remain key in our ability to mitigate the impact of mix shifts and pricing pressure on our profitability. Since the beginning of the year, we have already launched 34 new mobile devices across different price points. In the medium to longer term, we are looking at optimizing our global manufacturing capacity for different segments and products, as well as further developing our demand-supply network.

 

I am delighted that we gained or held our mobile device market share in all regions. Our 33% market share in the second quarter was a result of strong sequential gains in Latin America, China and North America, while keeping our market share in both Asia-Pacific and Europe/Middle East/Africa. In 3G devices, we also gained market share, which was in line with our expectations.

 

Our mobile infrastructure business performed well in the second quarter, especially in Latin America. However, the combined effects of a fiercely competitive market and our ongoing push into new growth markets are expected to lower Networks' profitability in the second half, compared with the first half 2005.

 

Looking at the quarter as a whole, there is a good deal of success to build on across the business in an increasingly challenging environment. Industry consolidation among market leaders in both the device and networks businesses is ongoing, but this is a game that Nokia is well positioned to win. To do this, we will continue to make targeted and decisive investments into marketing and R&D. 

 

With our upgraded mobile device portfolio at the high end, and volume advantage, brand and quality at the low end - where growth is increasingly driven - we have a strong base to expand our product and technology leadership.

 

INDUSTRY DEVELOPMENTS

Based on volume developments during the second quarter 2005, Nokia now expects the overall mobile device market for 2005 to reach about 760 million units, compared with our previous estimate of 740 million units, and up from an estimated 643 million units in 2004. We expect higher volume growth to be driven primarily by an expanding mobile subscriber base in developing markets.

 

We continue to expect the overall mobile device market in 2005 to grow in value. However, as the proportion of lower-priced entry-level phones continues to increase, industry average selling prices are expected to trend down for the remainder of the year.

 

In mobile infrastructure, Nokia continues to expect the overall market in 2005 to be slightly up compared with 2004 in euro terms. Operators in developing countries are at various stages of acceleration in their capacity upgrades to meet rising subscriber growth, while in advanced markets, targeted investment in capacity and network optimization are also expected to continue.

 

Third-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 7.1 billion in the third quarter 2004.  EPS (diluted) is expected to be in the range of EUR 0.14 to EUR 0.17, compared with EPS (diluted) EUR 0.15 in the third quarter 2004.

 

In the near future, Nokia intends to discontinue giving numerical sales and EPS guidance in its quarterly earnings announcements. This is in line with our recent move towards broader voluntary disclosure of data and information at the business group financial level and recent regulatory issues and ongoing changes in disclosure regulations.

 

 

Nokia's second-quarter 2005 group net sales increased by 25% to EUR 8.1 billion, compared with EUR 6.5 billion in the second quarter 2004. At constant currency, group net sales would have increased by 27%. All four of Nokia's business groups contributed to this year-on-year sales growth.

 

Nokia's second-quarter operating profit grew 13% year on year to EUR 1.0 billion, compared with EUR 0.9 billion in the second quarter 2004, with an operating margin of 12.5% (13.7%).

 

Operating cash flow for the second quarter 2005 was EUR 0.5 billion, compared with EUR 1.4 billion for the second quarter 2004, and total combined cash and other liquid assets were EUR 11.2 billion, compared with EUR 12.6 billion at March 31, 2005. As of June 30, 2005, our net debt-equity ratio (gearing) was -80%, compared with -94% at March 31, 2005.

 

For the second quarter 2005, the total mobile device volume achieved by our Mobile Phones, Multimedia and Enterprise Solutions business groups reached 60.8 million units, representing a year-on-year rise of 34% and sequential growth of 13%. Overall industry volume for the same period reached an estimated 183 million units, representing 24% annual growth and 8% sequential growth.

 

In smartphones, according to Nokia estimates, the total industry volume reached about 12 million units for the second quarter 2005, compared with an estimate of 3.5 million units in the second quarter 2004. Nokia's own smartphone volume grew to 6.7 million units, compared with 2.1 million units in the second quarter 2004.

 

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)	Q2 2005	Q2 2004	YoY Change (%)	Q1 2005
Europe, Middle-East & Africa	27.8	17.8	56	27.4
China	7.4	4.2	76	7.1
Asia-Pacific	10.5	8.2	28	10.6
North America	6.0	7.7	-22	4.3
Latin America	9.1	7.5	21	4.4
Total	60.8	45.4	34	53.8

 

Nokia's year-on-year volume growth in China was supported by the ongoing expansion of our distribution system into more rural areas. In Europe/Middle East/Africa, year-on-year volume growth in the second quarter 2005 was positively affected by a recovery of our market position in Western Europe and continued strong market volumes in the Middle East and Africa. In North America, Nokia's second-quarter volumes declined year on year, marked by a continuing challenging, competitive environment for Nokia.

 

Based on our preliminary market estimate, Nokia's market share for the second quarter 2005 grew to 33%, compared with 31% in the second quarter 2004 and 32% in the first quarter 2005. Strong sequential market share gains were achieved in Latin America followed by China and North America, while our share in other regions remained unchanged.

 

Nokia average selling prices in the second quarter declined to EUR 105, compared with EUR 108 in the second quarter 2004 and EUR 110 in the first quarter of this year. This primarily reflected continued market pricing pressure as well as stronger volume growth in emerging markets, where the product mix is weighted towards lower priced entry-level phones. We expect these trends to continue for the remainder of the year. 

 

Mobile Phones: Second-quarter 2005 net sales grew 20% year on year to EUR 4.9 billion, compared with EUR 4.1 billion in the second quarter 2004, driven by good demand. Sales growth was strongest in Europe/Middle East/Africa followed by China and Asia Pacific, while Latin America was virtually flat and North America declined significantly.

 

Operating profit declined 2% to EUR 789 million, compared with EUR 802 million in the second quarter 2004, with an operating margin of 16.2% (19.8%). Profitability in the second quarter 2005 was affected by continued pricing pressure in the market and a higher proportion of lower priced entry-level phone sales driven by stronger demand in emerging markets, compared with the same period in 2004. A year-on-year increase in sales and marketing expenses, supporting a high number of new product launches and branding initiatives, also impacted second-quarter profitability.

 

Multimedia: Second-quarter 2005 net sales increased 89% year on year to EUR 1.4 billion, compared with EUR 729 million in the second quarter 2004. Sales were strongest in Europe/Middle East/Africa followed by Asia-Pacific and China, while sales in North America and Latin America continued to be disappointing. Sales were driven by strong marketing efforts and portfolio management resulting in significantly increased demand for Nokia's Series 60 based smartphones, like the Nokia 7610 and the newly-released Nokia 6680, which was the number one revenue generator in Multimedia for the quarter.

 

Multimedia second-quarter operating profit increased to EUR 126 million, compared with an operating loss of EUR 64 million in the second quarter 2004, with an operating margin of 9.2% (-8.8%). Profitability was positively affected by a strong sales performance in the imaging smartphone business. Sales and marketing expenses, compared with the second quarter 2004, were significantly higher, supporting the launch of the new Nokia Nseries sub-brand.

 

Enterprise Solutions: Second-quarter 2005 net sales grew by 7% to EUR 198 million, compared with EUR 185 million in the second quarter 2004. Sales were supported by the wider availability of business-optimized mobile applications and new versions of the Nokia 9300 smartphone and Nokia 9500 Communicator that support different languages and operator requirements. Sales of the Nokia 9300 also increased momentum in June. However, net sales were partially offset by price declines in the messaging device category. Firewall sales were down slightly, year on year, consistent with overall global market declines seen in the first quarter 2005.

 

Second-quarter 2005 net sales increased by 6% to EUR 1.6 billion, compared with EUR 1.5 billion in the second quarter 2004. Sales were supported by very high growth in Latin America followed by Asia-Pacific, which more than offset flat sales in Europe/Middle East/Africa, lower sales in North America and to a lesser extent China.

 

Networks second-quarter operating profit decreased by 8% to EUR 209 million, compared with EUR 227 million in the second quarter 2004, with an operating margin of 12.9% (14.8%).

 

Q2 2005 OPERATING HIGHLIGHTS

Nokia's mobile device offering from the Mobile Phones, Multimedia and Enterprise Solutions business groups in the second quarter developed favorably with the announcement of 17 new models and first shipments of nine models.

 

- The Mobile Phones business group increased its consumer offering during the quarter with the introduction of new models in a range of form factors and designs. Highlights include:

   - Nine new GSM models, including the Nokia 6280, our first mid-range WCDMA/3G phone.

   - Four new CDMA models, growing our mid-range offering in CDMA. 

   - Premium category devices: the Nokia 8800 and Nokia 8801 stainless steel slide phones.

   - The Nokia 6270 slide phone: one of two new models with 2 megapixel cameras.

   - The Nokia 5140i camera phone: Nokia's first mobile device to comply with upcoming EU environmental legislation.

   - Two entry-level mobile phones, the Nokia 1110 and Nokia 1600, each offering technological features designed to reduce the total cost of ownership for users.

 

- The introduction of the Nokia Nseries sub-brand was an important strategic step for Nokia in building a new multimedia computer product category.

- Key collaboration agreements in support of our multimedia computer strategy were made in the area of mobile Internet, world-leading optics and audio accessories.

- The company introduced the first device in its new Internet Tablet category, the Nokia 770 Internet Tablet, based on Linux and the newly coined 'Maemo' development platform.

- In games, Nokia announced plans to expand the N-Gage multiplayer experience across a range of Nokia smartphones and Nokia Nseries devices.  Mobile devices with the capacity to play 
N-Gage games are expected to be on the market during the first half of 2006.

 

- In Europe/Middle East/Africa, third-party studies carried out during the quarter indicate that Nokia has quadrupled its share in the wireless PDA and related business smartphone market in the last year to more than 20%.

- The Nokia 9300 enterprise smartphone won a number of awards including 'Best Smartphone' (Laptop Buyer's Guide - US) (Stuff Magazine - UK) as well as 'Best Corporate Device' (Technology & Business magazine - Australia).

- The Nokia IP380 was named 'best buy firewall for small enterprises' (SC Magazine - UK); Network Computing magazine gave the Nokia IP260 an A Grade in its branch office firewall review.

- Working closely with Cisco, OnRelay, and Avaya, Nokia announced plans to offer advanced enterprise options for mobile voice. Pilots are expected to begin in the second half of this year.

 

- Nokia made several important announcements during the quarter covering both commercial agreements and our technology leadership. Highlights include:

   - A deal with Thailand's DTAC to expand its GSM/GPRS/EDGE network.

   - An agreement with Finnish Saunalahti to deliver fixed to mobile convergence solutions.

   - A 3G core network deal with Vodafone Hungary and a contract extension with 3G Infrastructure Services AB to expand the Swedish operator's 3G/WCDMA radio network.

- At the end of June 2005, there were an estimated 28 million 3G/WCDMA subscribers globally -  with the number growing roughly 10% per month since January - and 78 commercial WCDMA networks up and running. Nokia has been a supplier in almost half of these.

- Nokia underlined its strength in HSPA, which brings higher data speeds to 3G, with six public deals with T-Mobile, Elisa and Wataniya Telecom, and 15 non-public agreements to date.

- The company introduced the Nokia Prepaid Tracker, a networks solution designed for emerging markets, which lets subscribers track their prepaid balance and call expenses.

 

- Technology announcements in the second quarter focused on optimizing our user experience and included:

   - Cooperation with a high-end optics company.

   - Advances in Mobile TV through new pilots in Singapore, the UK and Australia and the public availability of Nokia's DVB-H air interface specifications.

   - The introduction of a new Series 60 browser, which Nokia will build on open source components.

- Nokia expanded its future radio technology portfolio by adding WiMAX and announced that it would work with Intel to accelerate the development, adoption and deployment of WiMAX.

- Forum Nokia, the world's largest mobile application developer community, reached a landmark 2 million registrations.

- The Forum Nokia PRO support program for corporates also grew to 400 members, bringing opportunities for member software developers and systems integrators to engage with our Enterprise Solutions business group and their customers.

 

For more information on the operating highlights mentioned above, please refer to related press announcements, which can be accessed at the following link: http://www.nokia.com/press

 

(International Financial Reporting Standards (IFRS) comparisons given to the second quarter 2004 revised* results, unless otherwise indicated.)

 

Nokia's net sales increased by 25% to EUR 8 059 million (EUR 6 463 million). Sales of Mobile Phones increased by 20% to EUR 4 864 million (EUR 4 050 million). Sales of Multimedia increased by 89% to EUR 1 377 million (EUR 729 million). Sales of Enterprise Solutions increased by 7% and totaled EUR 198 million (EUR 185 million). Sales of Networks increased by 6% to EUR 1 620 million (EUR 1 530 million).

 

Operating profit increased to EUR 1 004 million (EUR 888 million), representing an operating margin of 12.5% (13.7%). Operating profit in Mobile Phones decreased by 2% to EUR 789 million (EUR 802 million), representing an operating margin of 16.2% (19.8%). Multimedia reported an operating profit of EUR 126 million (operating loss EUR 64 million), representing an operating margin of 9.2% (-8.8%). Enterprise Solutions reported an operating loss of EUR 76 million (operating loss of EUR 62 million). Operating profit in Networks decreased by 8% to EUR 209 million (operating profit of EUR 227 million), representing an operating margin of 12.9% (14.8%). Common Group expenses totaled EUR 44 million (EUR 15 million), which included a EUR 37 million gain on the sale of real estate in the second quarter 2005 and a EUR 90 million return on an insurance premium in the second quarter 2004.

 

Financial income was EUR 103 million (EUR 135 million), which included a gain of EUR 17 million, representing the sale of the remaining portion of the France Telecom bond (a gain of EUR 71 million was also made in the second quarter 2004 from the sale of a portion of the France Telecom bond). Profit before tax and minority interests was EUR 1 108 million (EUR 1 017 million). Net profit totaled EUR 799 million (EUR 695 million). Earnings per share increased to EUR 0.18 (basic) and to EUR 0.18 (diluted), compared with EUR 0.15 (basic) and EUR 0.15 (diluted) in the second quarter 2004.

 

(IFRS comparisons given to the January - June 2004 revised* results, unless otherwise indicated.)

 

Nokia's net sales increased by 21% to EUR 15 455 million (EUR 12 811 million). Sales of Mobile Phones increased by 16% to EUR 9 391 million (EUR 8 130 million). Sales of Multimedia increased by 70% to EUR 2 510 million (EUR 1 473 million). Sales of Enterprise Solutions increased by 37% and totaled EUR 505 million (EUR 369 million). Sales of Networks increased by 6% to EUR 3 051 million (EUR 2 876 million).

 

Operating profit increased by 11% to EUR 2 122 million (EUR 1 907 million), representing an operating margin of 13.7% (14.9%). Operating profit in Mobile Phones decreased by 9% to EUR 1 658 million (EUR 1 831 million), representing an operating margin of 17.7% (22.5%). Multimedia reported an operating profit of EUR 281 million (operating loss EUR 86 million), representing an operating margin of 11.2% (-5.8%). Enterprise Solutions reported an operating loss of EUR 85 million (operating loss of EUR 97 million). Operating profit in Networks increased to EUR 430 million (operating profit EUR 381 million), representing an operating margin of 14.1% (13.2%). Common Group expenses totaled EUR 162 million (EUR 122 million).

 

In the period from January to June 2005, net financial income was EUR 181 million (EUR 211 million). Profit before tax and minority interests was EUR 2 300 million (EUR 2 108 million). Net profit totaled EUR 1 662 million (EUR 1 424 million). Earnings per share increased to EUR 0.37 (basic) and EUR 0.37 (diluted), compared with EUR 0.31 (basic) and EUR 0.31 (diluted).

 

The average number of employees during the first half 2005 was 55 721. At June 30, 2005, Nokia employed a total 56 571 people (55 505 people at December 31, 2004).

 

Nokia repurchased through its share repurchase plan a total of 40 800 000 shares on the Helsinki Stock Exchanges at an aggregate price of approximately EUR 549 101 812 during the period from May 4, 2005 to May 31, 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 2 448 000, representing approximately 0.92% 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.

 

Effective April 22, 2005, a total of 230 million shares held by Nokia Corporation were cancelled pursuant to the shareholders' resolution taken at the Annual General Meeting on April 7, 2005. As a result of the cancellation, the share capital was reduced by the aggregate par value of the shares cancelled, EUR 13 800 000, corresponding to less than 5% of the share capital of the company and the total voting rights. The cancellation did not reduce the shareholders' equity, and it did not have a significant effect on the relative holdings of the other shareholders of the company nor on their voting power.

 

On June 30, 2005, Nokia and its subsidiary companies owned 41 411 984 Nokia shares. The shares had an aggregate par value of EUR 2 484 719.04, representing approximately 0.93% of the share capital of the company and of the total voting rights. The total number of shares on June 30, 2005 was 4 433 761 300 and the share capital was EUR 266 025 678.

 

 

 

Nokia, Helsinki - July 21, 2005

 

Corporate Communications, tel. +358 7180 34495 or +358 7180 34900

Investor Relations Europe, tel. +358 7180 34289

Investor Relations US, tel. +1 914 368 0555

www.nokia.com

 

- Nokia will report Q3 results on October 20, 2005.