Digia Plc STOCK EXCHANGE RELEASE 2 March 2011 at 3:00 p.m.
PROFIT WARNING: NET SALES OF DIGIA’S MOBILE SOLUTIONS SEGMENT IN 2011 WILL FALL SHORT OF PREVIOUSLY EXPECTED LEVELS; CHALLENGES ALSO IN PROFITABILITY
Digia corrects the previous prediction and estimates that the net sales in 2011 will decline from the level of 2010. Digia also estimates that operational profitability will decline, at least temporarily; yet remain at least on a satisfactory level in the short term.
In order to adapt the volume of business operations to the expected decline in net sales of the Mobile Solutions segment, the company will consolidate the network of domestic business locations. The company intends to close down the Pori site and today is commencing cooperation negotiations with the employees of the Pori site. In total, 85 employees are affected by the negotiations.
In the Financial Statement, issued on February 4, Digia estimated that the net sales will grow in 2011, at least matching the general market rate, and that profitability will remain good. At the same time, however, Digia stated that uncertainty in the mobile market has increased.
Nokia Plc., an important client of Digia’s Mobile Solutions segment, announced on 11 February its new strategy, according to which Nokia intends to base its primary smartphone strategy on the Windows Phone 7 instead of Symbian or Meego technology.
Digia’s view on the impact of Nokia’s new strategy on Digia’s Mobile Solutions business is based, thus far, largely on the information released by Nokia and the assessments made thereof. The company finds it evident, however, that service sales to Nokia in Symbian and Meego technologies will fall below the level of 2010 to such a degree that the company will, most probably, not be able to recover the loss of sales entirely through new accounts or additional sales efforts to existing customers. In consequence, the company will probably not be able to pursue growth in net sales in the current situation and, the company’s net sales will decline compared to the figures of 2010.
The company estimates that, in the first quarter of 2011, the net sales of Mobile Solutions segment will remain equal to the 2010 and, thereafter, decrease from the level of 2010.
Nokia Plc.’s strategy revision will have no direct impact on the major part of Digia's business, namely, the Enterprise Solutions segment. It is likely that first-quarter net sales of the Enterprise Solutions segment will settle at the level of 2010, primarily because of licence sales being lower than expected. As regards the rest of the year, the company estimates that net sales of the Enterprise Solutions segment will develop, at a minimum, in line with general market growth.
For these reasons, the company is not able at this point to present a more detailed estimate of the group-level net sales for the entire year.
At least over the short term, the company will have difficulty in maintaining its desired profitability level of ten (10) per cent (EBIT %), because of the declining net sales of the Mobile Solutions segment and the rising cost and salary levels in both business segments.
The company estimates the profitability of the Mobile Solutions segment to be 5-7%in the first quarter. The company estimates the profitability of the Enterprise Solutions segment at 8-10% for the first quarter, affected particularly by the temporary decrease in licence sales in proportion to net sales during the beginning of the year. The profitability of the Enterprise Solutions segment is nevertheless expected to develop positively for the remainder of 2011.
The company’s estimate for the development of net sales and profitability will be specified in more detail once further information on the impact of Nokia's strategy revision on Digia's operations becomes available during spring 2011 and the company will be able to inform the market of the updated future prospects.
Digia Plc
Board of Directors
Further information
Juha Varelius, President and CEO
Tel. +358 400 855849, e-mail: juha.varelius@digia.com
Distribution
NASDAQ OMX Helsinki
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