the largest mobile phone manufacturer of the world, declared its third quarter 2010 financial results, which beat both the top-line and bottom-line Zacks Consensus Estimates. The results are particularly encouraging for its sagging Devices & Services Segment. Favorable product-mix biased towards converged mobile devices (smartphones & mobile computers) resulted in higher average selling price (ASP).
The company has decided to reduce headcount by 1,800 which will further boost its bottom-line. We believe Nokia’s unique cheap smartphones will maintain its sales momentum in the near future. Additionally, Nokia Siemens Network, a 50-50 joint venture between Nokia and Siemens AG (SI - Analyst Report) will also become stronger after acquiring the wireless infrastructure businesses fromMotorola Inc. (MOT - Analyst Report).
Quarterly net revenue was approximately $13,250 million, up 5% year-over-year and above the Zacks Consensus Estimate of $12,911 million. This was primarily due to the increase in the Mobile Phones business, helped by an improving line-up of affordable models.
Quarterly net income was approximately $415 million or 18 cents per share compared with a net loss of $1,278 million or a loss of 21 cents per share in the prior-year quarter. Third quarter 2010 adjusted (excluding special items) EPS was 18 cents, which is significantly above the Zacks Consensus Estimate of 13 cents.
Quarterly operating profit was approximately $520 million compared to an operating loss of $596 million in the year-ago quarter. Operating margin in the same quarter was 3.9% compared to a negative (4.3%) in the year-ago quarter. Operating cash flow in the reported quarter was approximately $566 million, down 39% year-over-year.
At the end of the third quarter of 2010, the company had around $13.20 billion of cash and marketable securities compared to $10.40 billion of cash and marketable securities at the end of the prior-year quarter. At the end of the third quarter of 2010, Nokia’s net debt-equity ratio was a negative (29%), compared to a negative (15%) at the end of the prior-year quarter.
Devices & Services Segment
Quarterly revenue was approximately $9,255 million, up 4% year-over-year. The increase was due to higher volumes in most regions driven by stronger demand and higher ASP. This segment continues to generate the bulk (70%) of total revenue. In the reported quarter, ASP was around $84, up 1.2% year-over-year and also up 5% sequentially. Gross margin was 29% compared to 30.9% in the same quarter of the previous year. Operating margin was 10.5% compared to 11.4% in the year-ago quarter.
In the third quarter 2010, Nokia shipped 110.4 million mobile handsets, up 2% year-over-year but down 1% sequentially. However, the major factor is that Nokia shipped a higher percentage of high-margin converged mobile devices in the same quarter. The company shipped 26.5 million converged mobile devices, up 61% year-over-year and 10% sequentially.
Nokia Siemens Network Segment
Quarterly revenue was approximately $3,796 million, up 7% year-over-year. Increase in revenue is mainly due to higher sales in North America, Latin America, and Asia-Pacific. Operating margin was negative (3.9%) compared to negative (1.9%) in the same quarter of the previous year.
NAVTEQ Segment
Quarterly revenue was approximately $325 billion, up 52% year-over-year. The increase was due to improved conditions in the automotive industry and growth in mobile devices sales. Operating margin was 29.4% compared to 25.9% in the same quarter of the previous year.
Future Industry Outlook
Nokia is expecting its fourth quarter 2010 revenue for the Devices & Services segment will be within the range of approximately $10.6 billion - $11.2 billion. Nokia expects an operating margin of 10%-12% in its core Devices & Services segment in the fourth quarter and 10% - 11% in fiscal 2010. For full fiscal 2010, the global mobile handset market is expected to go up by 10%. Nokia is expecting its global market share for mobile handsets to decline slightly year-over-year.
Fourth quarter 2010 revenue for Nokia Siemens Networks is expected between $4.4 billion - $4.9 billion. Operating margin is expected between 2% - 5% in its Nokia Siemens Networks in fourth quarter 2010.
We maintain our long-term Neutral recommendation for Nokia. Currently, it is a short-term Zacks #3 Rank (Hold) stock.
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