Nokia continues to gain market share in phones with excellent profitability

- Net sales were EUR 7 019 million (EUR 6 935 million in 2Q 2002), up by 1%.

- Pro forma operating profit was EUR 858 million (EUR 1 260 million), down by 32%. This included a charge of EUR 399 million related to restructuring in Nokia Networks.
Pro forma operating margin was 12.2% (18.2%).

- Pro forma adjustments for the second quarter 2003 consisted of goodwill amortization of EUR 40 million.

- Pro forma net profit was EUR 664 million (EUR 905 million), down by 27%.

- Pro forma earnings per share (diluted) were EUR 0.14 (EUR 0.19).

- Reported operating profit decreased by 33% to EUR 818 million (EUR 1 221 million). This also included the charge of EUR 399 million.

- Reported net profit decreased by 28% to EUR 624 million (EUR 862 million) and reported earnings per share (diluted) decreased to EUR 0.13 (EUR 0.18).

- Operating cash flow in the second quarter continued strongly at EUR 1.3 billion.

 

 

Continued excellent profitability and further positive market share developments in mobile phones during the quarter were very reassuring. We gained in two strategic focus areas: the US, our largest market, and the global CDMA market. Nokia's market share in mobile phones is now estimated at 39%, marking both a sequential and year-on-year increase for the second quarter. Overall, however, our sales reflected general economic and US-dollar weakness.

 

Our 14% growth in mobile phone volumes during the quarter was supported with shipments of 13 new models. Key to our success has been, and will continue to be, our winning execution and strong competitive position in all major technologies and segments. For the full year 2003, we are looking to enhance our leadership with a record launch of more than 35 new models.

 

Further to the feature-rich, multimedia models already on the market with current technologies, shipments of the Nokia 6650, our first 3G WCDMA phone, marked the full-scale availability of this new technology through standard distribution channels across the markets. I see this as strategically important not only for us but the entire industry. And this was not just any product launch - it was the culmination of our industry's largest ever field-testing exercise, a prolonged and exhaustive project, using 20,000 phones in almost every WCDMA network in the world.

 

With our growing portfolio, we are bringing the power of mobility into new areas such as imaging, music, games and enterprise applications, as well as expanding the mobile experience for the user. Nearly one-third of all Nokia phones sold now have color screens and multimedia capability. The new Nokia 6600 camera phone, launched in June, is a perfect example of a smart phone that combines business functionality like secure e-mail with a personal multimedia experience. We are now seeing increased signs of a consumer shift towards more feature-rich devices in leading-edge markets such as the UK and Scandinavia.

 

In our network business, decisive restructuring actions now underway are on track and will better position our business amid current challenging market conditions. In WCDMA networks, we are satisfied with progress made during the quarter. We now see our leading rollout capability and commercial readiness putting us among the very few top-tier companies driving this industry forward.

 

Bringing the full power of mobility to enterprises represents a new wave in business communication and a major opportunity for us. By integrating mobile technologies into their infrastructure, enterprises can achieve massive gains in productivity and efficiency. To address this, we are creating a new business group, Nokia Enterprise Solutions, which will report directly to me. The group will provide a diverse handset range as well as security and mobile connectivity solutions specifically tailored for enterprise needs.

 

 

NB: All pro forma 2Q figures can be found in the tables on page 8. A reconciliation of the pro forma figures to our reported results can be found in the tables on page 11.

 

NB: All pro forma 1H figures can be found in the tables on page 9. A reconciliation of the pro forma figures to our reported results can be found in the tables on page 11.

 

 

Second-quarter sales

Nokia's second-quarter sales of EUR 7.0 billion rose by 1% compared with the second quarter 2002.

 

Mobile phone sales rose by 2% year on year, broadly in line with previous guidance, reaching EUR 5.5 billion. While mobile phone volumes grew by 14%, sales were adversely affected by a weak US dollar and, to a lesser extent, an increased proportion of lower-priced entry-level phone sales in emerging markets such as India. Strong net sales growth in Europe was virtually offset by somewhat lower sales in Asia Pacific and substantially lower sales in the Americas.

 

Sales in Nokia Networks were flat at EUR 1.5 billion, at the upper end of previously stated guidance. This reflected continued growth in the Americas, flat sales in Europe and lower sales in Asia Pacific.

 

Second-quarter pro forma operating profit for the Nokia group declined 32% to EUR 858 million. This included a charge of EUR 399 million related to restructuring in Nokia Networks.

 

At Nokia Mobile Phones, continued broad product competitiveness and operational efficiency drove profitability, with pro forma operating profit in the second quarter rising 9% year on year to EUR 1.3 billion and pro forma mobile phone margins continued at high levels of 23.1%. At Nokia Networks, pro forma operating loss was EUR 334 million. If the restructuring charge of EUR 399 million were excluded, Nokia Networks would have shown a small pro forma operating profit.

 

Pro forma EPS (diluted) for the Nokia group reached EUR 0.14, within the previously guided range of EUR 0.13 and EUR 0.16.

 

Nokia's cash position remained healthy, with total available cash at EUR 9.9 billion by the end of the quarter.

 

In the second quarter, Nokia took a charge of EUR 399 million relating to previously announced restructuring at Nokia Networks. This consisted of a non-cash charge of EUR 304 million for impairments and project closures in research and development, with the remainder relating to personnel reductions. By the end of 2003, it is estimated that Nokia Networks will comprise approximately 15,000 employees, compared with a total 17,361 at December 31, 2002.

 

Outlook for third quarter 2003

Nokia expects its third-quarter mobile phone volumes to grow by well over 10%, representing faster-than-market growth, with strong profitability continuing. However, sales of Nokia Mobile Phones in the third quarter are expected to be flat or slightly down year on year, largely due to a major depreciation of the US dollar, compared with the same period in 2002.

 

In Nokia Networks, operating conditions show no sign of improvement, and the company is estimating a year-on-year sales decline of 15% to 20% for the third quarter. Given this sales outlook, Nokia Networks is expected to show a small pro forma operating loss in the third quarter.

 

Nokia expects third-quarter pro forma EPS (diluted) to be in the range of EUR 0.15 and EUR 0.17, while reported EPS (diluted) is expected to be in the range of EUR 0.14 and EUR 0.16. Third-quarter 2002 pro forma EPS (diluted) was EUR 0.18 and reported EPS (diluted) was EUR 0.13.

 

Nokia mobile phone market share grows to 39%

Nokia's market share for the second quarter is estimated to have grown to 39%, indicating both a sequential and a year-on-year increase. This was mainly driven by market share gains in the US.

 

Total mobile phone market volumes for the second quarter were up year on year for the fifth consecutive quarter, rising by 11% to 105 million, while Nokia's own volumes grew by 14% to 41 million units.

 

Nokia continues to expect global handset volume for the full year 2003 to grow by approximately 10%, compared with 405 million units in 2002. Nokia volume growth is expected to be stronger than market growth for the full year 2003.

 

Company sees increase in CDMA share

In line with Nokia's long-term target to become a leading CDMA mobile device manufacturer, the company started shipping four new CDMA phones in the second quarter, including the launch of the Nokia 3586i, Nokia's first CDMA phone with a color screen. The company also began shipments of CDMA phones in India, while in China received the CDMA manufacturing licence, and will commence CDMA production and sales there during the second half. The positive effects of this expanding product range and customer base enabled Nokia to see a second-quarter increase in its CDMA market share.

 

Mobile networks market remains slow

In the network infrastructure business, market conditions show no signs of improving. Operator investment has decreased to an exceptionally low level, and Nokia continues to expect the overall market to contract by 15% or more for the full-year 2003.

 

Nokia is creating Nokia Enterprise Solutions, a new business group targeting the enterprise market.

Nokia Enterprise Solutions will bring together Nokia's various corporate activities from Nokia Mobile Phones and Nokia Ventures Organization with the aim of providing enterprises with a competitive, focused mobile device range and platform as well as secure connectivity solutions. The new business group will start financial reporting from the first quarter 2004.

 

 

 

 

 

Media and Investor Contacts:

Lauri Kivinen, Corporate Communications, tel. +358 7180 34495

Ulla James, Investor Relations, tel. +358 7180 34962

Bill Seymour, Investor Relations, tel. +1 972 894 4701

Antti Räikkönen, Investor Relations, tel. +358 7180 34290

 

www.nokia.com

 

- Nokia will report 3Q results on October 16, 2003 and plans a mid-quarter update on September 9, 2003.

- A results announcement for 4Q 2003 is planned for January 22, 2004.

 

The complete press release with tables is available at: http://www.nokia.com/2003/2Q/index.html