Nokia reports third-quarter 2004 net sales of EUR 6 939 million, EPS EUR 0.14

- Net sales increased 1% to EUR 6 939 million (EUR 6 874 million in Q3 2003), up 8% at constant currency

- Operating profit decreased 20% to EUR 928 million (EUR 1 154 million), with operating margin of 13.4% (16.8%)

- EPS (diluted) was EUR 0.14 (EUR 0.17) on net profits of EUR 660 million

- Mobile Phones net sales of EUR 4 429 million (EUR 5 118 million) were 13% lower than in 2003, with EUR 822 million operating profit (EUR 1 473 million) and operating margin of 18.6% (28.8%)

- Multimedia net sales increased 94% to EUR 914 million (EUR 471 million)

- Networks net sales grew 21% to EUR 1 470 million (EUR 1 217 million), with EUR 181 million operating profit (EUR 4 million) and an operating margin of 12.3% (0.3%)

- Enterprise Solutions net sales increased 52% to EUR 172 million (EUR 113 million)

- Operating cash flow for the quarter was EUR 1.2 billion (EUR 1.2 billion) and overall cash position was EUR 11.8 billion (EUR 10.8 billion) at the end of the quarter

 

The strong momentum in the global mobile device industry continued in the third quarter, resulting in a total global mobile device volume of 158 million units, according to our preliminary estimate.  The replacement market in Europe and North America, as well as markets with relatively low mobile penetration rates such as Latin America, continued to be the major contributors to this volume growth. 

 

With more competitively positioned mobile devices in the replacement market and an attractive offering for rapidly growing markets, Nokia's mobile device volume reached 51.4 million units in the third quarter. While Nokia was able to deliver products in higher-than-expected volumes during the quarter, industry-wide component tightness affected our overall volumes. 

 

Nokia's mobile device market share increased quarter-on-quarter to 33%, according to our preliminary estimate.  We made substantial market share gains in major Western European markets and maintained our leadership position in China.  However, in the US we lost market share during the quarter, and despite strong sales growth, our market share in Latin America was down slightly from the second quarter 2004.

 

Nokia net sales increased slightly from third quarter 2003 levels. This was a result of the mobile device market share gains in Europe and continuing strong mobile device sales in China, Latin America and the rest of Asia offsetting the negative sales development in North America.  Sales in the infrastructure business grew significantly in Europe, Latin America and Asia as investments in capacity and coverage increased.  

 

We achieved EUR 0.14 EPS with a combination of healthy demand for Nokia products, which resulted in higher-than-expected sales, and steadfast cost control.  I'm particularly pleased with the growing acceptance of many of our mid-range and high-end products, such as the Nokia 6230 and Nokia 6610i camera phones as well as the Nokia 7610 and Nokia 6600 imaging smartphones, which materially contributed to sales and profits in the third quarter.

 

To further the focused renewal of our product portfolio, we introduced and started shipping several new mobile devices during the third quarter.  The newly launched products strengthen our high-end and mid-range offering and include a trio of fashion-category phones, the Nokia 7260, Nokia 7270 and Nokia 7280; our third mega-pixel imaging smartphone, the Nokia 6670; and the Nokia 9300 enterprise smartphone.

 

Our mobile infrastructure business sales grew markedly in Europe, Latin America and Asia during the quarter as operators continued to expand capacity and coverage.  Sustained strong sales in 2G and five new GSM, EDGE and 3G customers in growth markets contributed to Networks solid third-quarter profitability. Highlighting our progress in 3G, Nokia has to date supplied 3G technology to 24 of the 50 commercially launched WCDMA 3G networks in the world.   

 

We aim to continue offering high value-adding products to our customers, including operators, consumers and enterprises, by persistently renewing our competences and product portfolio. To drive these results, we have allocated additional resources to customization and enhanced customer focus, as several recent announcements indicate.  I'm pleased that our efforts in product renewal resulted in market share gains in the third quarter in major Western European markets due to the positive reception of camera phones and Symbian-based, open platform smartphones.  Our increased smartphone offering and investments in software have contributed to our clear leadership in smartphones.

 

We expect continued strong growth in global mobile device market volumes in the fourth quarter, even as compared to the remarkable final quarter in 2003, and now estimate that the 2004 total market volume will be approximately 630 million units. In the fourth quarter, we will begin shipping several new products focused on the mid-range and high-end to further strengthen the competitiveness of our product portfolio in order to continue building our market share.

 

 

 

 

 

 

Third-quarter sales

Nokia's third-quarter net sales of EUR 6.9 billion increased 1% compared to third quarter 2003.  At constant currency, group net sales would have increased 8% year on year.

 

Nokia's overall mobile device volume was 51.4 million units.  Volumes were driven by strong growth in the Europe/Middle East/Africa market, Latin America, China and the rest of Asia, while volumes declined significantly in North America, compared to third quarter 2003.  Nokia's overall mobile device net sales in euro terms grew significantly in China and Latin America and the rest of Asia, slightly in the Europe/Middle East/Africa market, while declining significantly in North America. 

 

Mobile Phones business group third-quarter net sales decreased 13% year on year to EUR 4.4 billion.  Compared to third quarter 2003, our market mix in the third quarter 2004 was more weighted towards low penetration markets where entry-level phones predominate.  Our mid-range volumes grew, but this was not enough to counter balance the impact of the low penetration markets. Sales also continued to be impacted by the pricing actions primarily taken in the second quarter 2004.

 

Multimedia business group third-quarter net sales increased 94% year on year to EUR 914 million as strong sales of imaging devices such as, the Nokia 7610 and Nokia 6600, continued. 

 

Networks business group third-quarter net sales increased 21% year on year to EUR 1.5 billion as a result of positive developments in Europe, Latin America and Asia as operators continued to expand network capacity and coverage. 

 

Enterprise Solutions business group third-quarter net sales increased 52% year on year to EUR 172 million, driven by the sales of business-focused mobile devices.

 

Third quarter profitability

Nokia Group's operating profit was EUR 928 million (in Q3 2003, EUR 1 154 million operating profit) and operating margin was 13.4% (16.8%).  Third quarter 2004 operating profit included a one-time positive item of EUR 20 million representing the premium return under our multi-line, multi-year insurance program, which expires during 2004.  The return is due to our low claims experience during the policy period.  Third quarter 2004 operating profit was negatively impacted by research and development impairments in Networks totaling EUR 38 million.

 

Mobile Phones operating profit was EUR 822 million (EUR 1 473 million) with an 18.6% (28.8%) operating margin.  Operating profits and margin continued to be impacted by the pricing actions primarily taken in the second quarter 2004.

 

In the third quarter, the success of imaging devices positively contributed to Multimedia's operating profit of EUR 87 million and 9.5% operating margin.

 

Networks operating profit was EUR 181 million (EUR 4 million) with a 12.3% (0.3%) operating margin, as we anticipated.  Third quarter 2004 operating profit was negatively impacted by research and development impairments in Networks totaling EUR 38 million.  This impairment was due to the discontinuation of activities linked to base station component horizontalization.

 

Enterprise Solutions operating loss was EUR 66 million with an operating margin of -38.4%, in line with our expectations.

 

Capital structure

Nokia's operating cash flow for the quarter was EUR 1.2 billion and overall cash position was EUR 11.8 billion as of September 30, 2004.  Net debt-to-equity ratio (gearing) was -81 %. 

 

During the quarter, we continued our share buybacks spending EUR 526 million, pursuant to the 2004 Annual General Meeting authorization.  The number of shares repurchased during the quarter was 55 million.

 

The global mobile device market continued to grow during the third quarter reaching 158 million units, according to our preliminary estimate.  We expect continued strong volume growth in the fourth quarter along with the usual seasonal development.  We now estimate 2004 total market volume of approximately 630 million units.  Industry component tightness affected third quarter volumes and is expected to continue to some degree in the fourth quarter. 

 

The overall mobile infrastructure market is developing slightly better than previously expected, and Nokia now expects slight to moderate growth for the overall market in 2004 compared to last year in euro terms.

 

Fourth-quarter net sales for Nokia Group are expected to be in the range of EUR 8.4 billion - EUR 8.6 billion compared to fourth-quarter 2003 net sales of EUR 8.8 billion.  EPS (diluted) in the fourth quarter is expected to be in the range of EUR 0.16 - EUR 0.18 compared to fourth quarter 2003 EPS (diluted) of EUR 0.25.

 

Nokia continued to strengthen its product portfolio during the third quarter by beginning shipments of six models and launching three new models.

 

In the third quarter, Nokia began shipping six new models of which two were camera phones.  These models covered all ranges and form factors:  the color-screen Nokia 2650 fold in the entry-level range; the Nokia 3220 camera phone in the mid-range; and Nokia 6260 Series 60 fold and swivel design smartphone for business users.  Also three CDMA models began shipping: the color-screen Nokia 6015i and Nokia 6012 as well as the entry-level Nokia 2112.

 

With the introduction of the first Nokia Fashion Collection, Nokia expanded its high-end product offering with three new camera phones:  the Nokia 7280, a unique slide design without a keyboard; the Nokia 7270 fold; and the Nokia 7260.  The Fashion Collection is characterized by bold colors and art deco designs combined with the latest technology.

 

Building its imaging device portfolio, Nokia launched its third megapixel imaging device, the Nokia 6670, in the third quarter.  Also during the quarter, Nokia started shipping two models for the Americas: the Nokia 6620, an EDGE-enabled imaging smartphone, and the Nokia 6651, a WCDMA/GSM imaging device.  Several operators have selected the Nokia 6630, the world's smallest 3G WCDMA megapixel smartphone, as part of their 3G WCDMA product portfolio, including Vodafone which will offer the device in Japan and globally later this year.

 

In the third quarter, Nokia shipped the one-millionth game deck based on the N-Gage platform.  The N-Gage QD also started shipping in the US with support from all three GSM carriers. Nokia announced seven new N-Gage titles bringing the total N-Gage game portfolio to more than 50 titles.

 

In addition, Nokia announced the Nokia Remote Camera, the Nokia Wireless GPS Module and a range of wireless Bluetooth headsets and in-car communication kits.

 

Nokia gained four new GSM and GSM/EDGE customers during the third quarter and was awarded infrastructure contracts with Ethiopian Telecommunications in Ethiopia, Bharat Sanchar Nigam Limited in India, Telenor in Pakistan and DCC/Astelit in the Ukraine. Nokia also announced GSM/EDGE and GPRS expansion deals with Jiangxi MCC in China and with Indosat in Indonesia, and an EDGE and Push to talk over Cellular deal with New World Mobility in Hong Kong.

 

WCDMA 3G continued to gain commercial momentum. Nokia signed WCDMA 3G expansion deals with MTC-Vodafone in Bahrain, and with Chungwa Telecom and Taiwan Cellular Corporation in Taiwan. Nokia also won a new WCDMA 3G customer, signing a GSM/EDGE and WCDMA contract with GPTC in Libya, a new market and new customer for Networks. Nokia is rolling out WCDMA 3G networks with 31 customers in 19 countries. To date, Nokia has supplied 3G technology to 24 of the 50 commercially launched WCDMA 3G networks in the world.

 

Nokia reinforced its strong position in the services business during the quarter, and managed services were included in the contracts in Pakistan, Taiwan and the Ukraine. In addition, nine of the infrastructure contracts announced during the quarter included the Nokia NetAct operations support system. 

 

Nokia started volume deliveries of its first-to-market, 3GPP Release 4 compliant Nokia MSC Server System designed to reduce operators' fixed and operation costs.  Nokia has delivered the technology to over 20 operators already.

 

Nokia launched the Nokia 9300 high-end enterprise smartphone during the third quarter. It blends modern styling, powerful functionality and an integrated full keyboard.

Nokia's two new high-end network security appliances, the Nokia IP2250 and Nokia IP1220, were well received by the market.  An expanded version of Nokia Secure Access System, an SSL-based remote access solution with client-less VPN functionality, began shipping during the quarter.

Nokia also received US government certification for two of its high performance network security appliances for small- and medium-sized enterprises. Compliance with the Federal Information Processing (FIPS) 140-2 standards provides new opportunities for Nokia network security solutions with the public and private sector organizations in North America.

 

 

TECHNOLOGY DEVELOPMENTS IN THE THIRD QUARTER

During the third quarter, Nokia and Vodafone announced an industry initiative to establish a common, open-standards based, next-generation mobile Java services architecture to develop and deploy consumer and enterprise applications and services.  Nokia also joined the Open Mobile Terminal Platform (OMTP) initiative to consolidate the most important operator requirements for standardization and software platforms. Nokia's participation in the OMTP helps us create software offerings that will be best positioned to meet operator needs. Nokia also joined the GSM Association, which promotes the interests of GSM operators and is comprised of the world's leading mobile operator groups, as an Associate member in order to further strengthen our relationships with mobile operators.

 

In September, Nokia and Metroworks agreed on the transfer of application development technology for the Symbian operating system (OS) to Nokia.  The agreement helps to ensure the availability and to further the evolution of the highest quality development tools for device and application creation on the Symbian OS.

(International Accounting Standards, IAS, comparisons given to the third quarter 2003 results, unless otherwise indicated. Business Group third quarter 2003 figures are based on the unaudited, regrouped 2003 financial results as published on March 25, 2004.)

 

Nokia's net sales increased 1% to EUR 6 939 million (EUR 6 874 million). Sales of Mobile Phones decreased by 13% to EUR 4 429 million (EUR 5 118 million). Sales of Multimedia increased by 94% to EUR 914 million (EUR 471 million). Sales of Networks increased by 21% to EUR 1 470 million (EUR 1 217 million). Sales of Enterprise Solutions increased by 52% and totaled EUR 172 million (EUR 113 million).

 

Operating profit decreased by 20% to EUR 928 million (EUR 1 154 million), representing an operating margin of 13.4% (16.8%). Operating profit in Mobile Phones decreased by 44% to EUR 822 million (EUR 1 473 million), representing an operating margin of 18.6% (28.8%). Operating profit in Multimedia increased to EUR 87 million (operating loss EUR 177 million), representing an operating margin of 9.5% (-37.6%). Operating profit in Networks increased to EUR 181 million (EUR 4 million), representing an operating margin of 12.3% (0.3%) and included a negative impact from research and development impairments totaling EUR 38 million.  Enterprise Solutions reported an operating loss of EUR 66 million (operating loss of EUR 34 million). Common Group expenses totaled EUR 96 million (EUR 112 million) and included a one-time positive item of EUR 20 million representing the premium return under our multi-line, multi-year insurance program, which expires during 2004.  The return is due to our low claims experience during the policy period.

 

Financial income totaled EUR 78 million (EUR 70 million). Profit before tax and minority interests was EUR 1 000 million (EUR 1 222 million). Net profit totaled EUR 660 million (EUR 823 million). Earnings per share decreased to EUR 0.14 (basic) and to EUR 0.14 (diluted), compared with EUR 0.17 (basic) and EUR 0.17, (diluted) in the third quarter 2003.

 

(International Accounting Standards, IAS, comparisons given to the January - September 2003 results, unless otherwise indicated. Business Group January - September 2003 figures are based on the unaudited, regrouped 2003 financial results as published on March 25, 2004.)

 

Nokia's net sales decreased by 2% to EUR 20 204 million (EUR 20 666 million). Sales of Mobile Phones decreased by 14% to EUR 12 847 million (EUR 14 913 million). Sales of Multimedia increased by 57% to EUR 2 429 million (EUR 1 551 million). Sales of Networks increased by 14% to EUR 4 461 million (EUR 3 914 million). Sales of Enterprise Solutions increased by 36% and totaled EUR 550 million (EUR 403 million).

 

Operating profit decreased by 11% to EUR 2 973 million (EUR 3 342 million), representing an operating margin of 14.7% (16.2%). Operating profit in Mobile Phones decreased by 36% to EUR 2 708 million (EUR 4 230 million), representing an operating margin of 21.1% (28.4%). Operating profit in Multimedia was EUR 15 million (operating loss EUR 293 million), representing an operating margin of 0.6% (-18.9%). Operating profit in Networks increased to EUR 618 million (operating loss EUR 260 million), including a negative impact from research and development impairments totaling EUR 38 million, representing an operating margin of 13.9% (-6.6%). Networks operating profit in January - September 2003 included a gain of EUR 226 million from the revaluation of the France Telecom receivable and a EUR 399 million charge related to restructuring. Enterprise Solutions reported an operating loss of EUR 156 million (operating loss of EUR 82 million). Common Group expenses totaled EUR 212 million (EUR 253 million, including the gain of EUR 56 million on the sale of the remaining shares of Nokian Tyres Ltd) and included a one-time positive item of EUR 110 million representing the premium return under our multi-line, multi-year insurance program, which expires during 2004.  The return is due to our low claims experience during the policy period.  

 

In January - September, net financial income was EUR 289 million (EUR 281 million), including the following one-time positive item of EUR 71 million.  During the second quarter, Nokia sold approximately 50% of its subordinated convertible perpetual bonds issued by France Telecom. As a result, the company booked a total net gain of EUR 71 million. The bonds had been classified as available-for-sale investments and fair valued through shareholders' equity. 

 

Profit before tax and minority interests was EUR 3 246 million (EUR 3 614 million).  Net profit totaled EUR 2 188 million (EUR 2 424 million).  Earnings per share decreased to EUR 0.47 (basic) and EUR 0.47 (diluted), compared to EUR 0.51 (basic) and EUR 0.51 (diluted).

 

The average number of employees during January - September was 52 912. At September 30, 2004, Nokia employed a total of 54 783 people (51 359 people at December 31, 2003).

 

At September 30, 2004, net debt-to-equity ratio (gearing) was -81% (-71% at December 31, 2003). During the January - September 2004, capital expenditure amounted to EUR 321 million (EUR 314 million).

 

Nokia repurchased through its share repurchase plan a total of 55 000 000 shares on the Helsinki Exchanges at an aggregate price of approximately EUR 526 335 720 in the third quarter during the period from July 16 to August 13. 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 3 300 000, representing approximately 1.2% 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 September 30, 2004, Nokia and its subsidiary companies owned 117 056 663 Nokia shares. The shares had an aggregate par value of EUR 7 023 399.80, representing approximately 2.5 % of the share capital of the company and of the total voting rights. The total number of shares on September 30, 2004, was 4 663 760 300 and the share capital was EUR 279 825 618.

 

 

 

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- Nokia will report Q4 and full-year 2004 results on January 27, 2005.

- Nokia will publish four interim reports in 2005.

 -The Annual General Meeting is scheduled to be held on April 7, 2005.