Published by Rafe Blandford at 12:07 UTC, July 21st 2011
Nokia has released its Q2 2011 results, reporting an operating loss of -€487 million, with net sales of €9.275 billion (down 7% YoY). Nokia's Devices and Services division's losses were -€247 million. Margins in devices and services were -4.5% (down 14% YoY and down 14.2% QoQ). However, non-IFRS operating profit was €391 million (down 41% YoY and down 44% QoQ), with Devices and Services non-IFRS profit at €369 million, and margins at 6.7%. Total smartphone device sales were 16.7 million, compared with 24 million units in Q2 2010 (down 34% YoY) and 25.2 million units in Q1 2011 (down 31%, QoQ).
Non-IFRS results exclude special items for all periods and can be seen as measures of underlying performance. Usually there is only a small difference between the two sets of results (e.g. the two figures for Q1 2011 operating profit for Devices and Services were €690m and €692m). In Q2 2011, these include charges related to restructuring (e.g. €297m in Devices and Services) and a variety of charges related to acquisitions. More details are available in Nokia's detailed report.
A Reuters poll of 27 analysts prior to the release of the results predicted an underlying profit of €103 million, but predictions were wide ranging due to an anticipated payment from Apple for licensing fees from the recently settled patent litigation. The actual figure was €391 million, beating expectations. Sales were also slightly ahead of expectations (9.3 billion versus 9.2 billion), but total devices sales were significantly lower than expected (88.5 million versus 95.5 million). In response to the news, Nokia share price is up approximately 5%.
These results follow Nokia's May announcement that its second quarter results would be "substantially downgraded from its previous outlook".
Stephen Elop said:
“The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011. However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business. Most importantly, we are making better-than-expected progress toward our strategic goals...”
"...Thus, while our Q2 results were clearly disappointing, we are executing well on the initiatives that are most important to our longer term competitiveness. Some progress is already evident, and thus we are targeting to end this year with more net cash and liquid assets than at the end of Q2 2011. We firmly believe that our deliberate and unwavering commitment to making the changes necessary at Nokia is the right way to deal with the disruptive forces in our industry and drive value creation for our shareholders."
As a result of the fall in smartphone sales, Nokia's 15 year reign as the number one smartphone manufacturer comes to an end. Its 16.7 million units in Q2 were exceeded by Apple's 20.2 million, reflecting the problems facing Nokia in the smartphone space.
Looking forward, Nokia expects its non-IFRS Devices and Services operating margin in Q3 to be just above break even, with a range of 2% above or below this (Nokia says it is providing a wider than normal range due to limited visibility). This would suggest that Nokia expects Q3 to continue to be challenging. The outlook is based on a number of factors, including competitive industry dynamics, Nokia's actions to intensify sales and marketing to drive net sales, improved competitiveness in Mobile Phones (due to dual SIM products), timing of new product shipments and the macro economic environment.
Nokia is accelerating its plan to reduce Devices and Services operating expenses and now expects to exceed the previous target of €1 billion saving for the full year 2013 (compared to €5.65 billion for 2010).
This charts show the market context from the last few years. The figures for Q2 2011 include some estimates as some manufacturers have not reported their numbers, nor have the numbers been fully normalised between manufacturers. Nonetheless they do give an indicative guideline.
These figures can also be expressed as % market share, which shows comparitive performance over time.
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