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Nokia grows sales for first time since 2011

Strong mobile broadband sales fuel 13% rise in revenues in Q3 and upgraded outlook for operating margins


Published: 23 October, 2014


Free of its burdensome handset unit, Nokia has reported its second quarter as a primarily infrastructure-driven firm, announcing a strong improvement in Q314 figures and its first year-on-year sales increase for three years.

New LTE contracts in North America and China were the key factors in a 13% year-on-year rise in sales to €3.32bn. Nokia Networks was initially slow to net the massive first-wave LTE deals which rivals Ericsson and Alcatel-Lucent secured in the US and other markets. But it has been strong in the second wave, gaining flagship US deals with T-Mobile and Sprint, and a healthy portion of China Mobile's vast TD-LTE tenders.

Before the sale of the devices division to Microsoft, Nokia Networks had already gone through a major reorganization, doubling down on mobile broadband alone, and this is starting to deliver results.

In Q3, adjusted operating profit was up 33% year-on-year to €457m, a performance which led the company to improve its outlook for the full year in the critical metric of operating margin. It now expects an annual figure around 11%, up from a previous guidance of between 5% and 10%, driven by a change in its revenue mix.

The third quarter saw a higher than expected proportion of revenue (over 48% of the group total) coming from mobile broadband sales, which generate higher margins than services or network modernization programs. The shift from modernization and services to capacity investments has also had a positive effect on Ericsson's recent performance. However, in the current Q4, Nokia expects a higher proportion of revenues to come from services than in Q3.

Net profit rose to €760m from €138 million a year earlier but the firm reported a pre-tax loss of €834m, reversing a year-ago profit of €202m. This was because of a €1.2bn charge to write down the value of goodwill at the mapping division, Here, one of the two other units (along with an IPR/R&D operation) which was retained after the devices sell-off. That charge was offset by a one-time gain of €2.1bn on deferred tax assets in Finland and Germany. Nokia finished the quarter with net cash of €5bn.

The Networks division accounts for the bulk of sales - 88% of the total, or €2.94bn, in the third quarter, a figure which was up 13% on the year-ago period, the same as the overall group sales growth. Within Networks, the star was mobile broadband, whose sales were up 33% to €1.67bn or 57% of the total, a clear justification of the decision to make this the core focus of Nokia's growth strategy. By contrast, global services revenues were down 5% to €1.27bn.

Sales growth was highest in the booming Greater China market, which delivered revenues of €384m to Nokia Networks, up 38% year-on-year, while its largest - but recently most troubled - region, Europe, showed encouraging signs of recovery, with sales up 9% to €767m. Though the shift towards China carries with it the fear of lower margins, for now Nokia has addressed that issue convincingly, and Networks' operating margin was 13.5% for the quarter, well ahead of analyst expectations of just under 10%. In the second quarter its figure was 11%.

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