Nokia

After reporting profit in the previous quarter, Nokia is back in the red – posting a loss of €150 million ($196 million) for the quarter ending March 31, 2013. This is however a significant improvement from €1.34 billion loss ($1.75 billion) reported in the same quarter last year.

The company reported a net sales of €5.85 billion ($7.64 billion) for the quarter, registering a 20% decline from €7.35 billion ($9.60 billion) sales in the same quarter last year and a 27% decline from €8.04 billion ($10.51 billion) sales from the previous quarter.

Operating Highlights

– Nokia has shipped 5.6 million Lumia smartphones during the quarter, up 27% quarter-on-quarter (QoQ). Nokia informed that around two-thirds of this shipments were Windows Phone 8 based devices. It also sold 0.5 million Symbian smartphones during the quarter.

–  Nokia has sold 5 million Asha full touch smartphones during the quarter, registering a 46% decline QoQ. The company attributes this decline to lower seasonal demand and intense competition from other low cost mobile phone makers. Note that while Nokia clubs Asha full touch smartphones with other smartphones while mentioning smartphone volumes, it takes Asha sales into account in mobile sales volumes, while elaborating on its devices and services sales.

– Nokia started shipping Nokia Lumia 620 in significant volume and increased the geographical distribution of Lumia 920 and Lumia 820.

– Nokia announced Nokia Lumia 520, its most affordable Windows Phone 8 smartphone as of now. It also announced and started shipping Nokia Lumia 720, a mid-range Windows Phone 8 device.

– Nokia announced three new phones in the mobile devices segment – the Nokia 301, the Nokia Asha 310 and the Nokia 105, its most affordable phone to date.

– HERE platform introduced improved app-to-app linking and syncing of favorites from Here.com to any HERE experience. The company also says that HERE platform now allows users to customize their home screen as a personal location dashboard.

– HERE also extended its augmented reality technology LiveSight to HERE Maps. Nokia had announced LiveSight technology in the previous quarter and Nokia’s City Lens app is based on LiveSight technology.

– HERE extended its application suite which includes HERE Drive, HERE Maps and HERE Transit to non-Nokia Windows Phone 8 in Canada, France, Germany, Italy, Mexico, Spain, the United Kingdom and the United States.

– In the previous quarter, Nokia had inked a strategic partnership with Mozilla to offer new location experiences to the Firefox OS. As part of this partnership, Mozilla had previewed HTML5-based HERE Maps during the quarter.

– Toyota Motor Europe has selected HERE platform’s local search service for automative for its next generation Touch & Go navigation and infotainment systems.

– German language weather portal Wetter.com has started using HERE-powered maps to overlay information it receives from radar stations and satellite imagery. Nokia says that Wetter.com is Europe’s largest German language weather portal with 13 million unique visitors.

– 10 companies have adopted the HERE location platform including Tiscali and SEAT Pagine Gialle in Italy and Terra in Brazil among others.

– Several automobile companies have chosen HERE as its partner for Map Updates. This includes FujitsuTEN Australia Limited, KIA Europe, Mitsubishi Motor Corporation (MMC), Nissan Mexico, Subaru Canada and Volkswagen Europe among others.

Payment from Microsoft: For the quarter, Nokia received a quarterly platform support payment of $250 million (€202 million) from Microsoft. This is the same amount that it had received in earlier tranches. The company said that it has a competitive software royalty structure, which includes minimum software royalty commitments that varies over the agreement life and is paid on a quarterly basis. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments is expected to slightly exceed the total amount of the minimum software royalty commitments.

In the previous quarter, Nokia had informed that the amount of platform support payments received by Nokia had exceeded the amount of minimum royalty commitment payments to Microsoft, due to which the total amount of the minimum software royalty commitment payments to Microsoft is expected to exceed the total amount of the platform support payments received by Nokia for the remainder of the agreement life.

While the company hasn’t mentioned any update in the current quarterly report, it had mentioned in its annual report last month that Microsoft’s minimum software royalty commitment payments will exceed Nokia’s platform support payments by around €500 million. Nokia however informed that its platform support payments will slightly exceed Microsoft’s minimum software royalty commitment payments in 2013, due to which the net cash flows are still expected to be slightly in Nokia’s favor.

Nokia Tax Case: Nokia informed that it has received a tax claim of €225 million ($294 million) plus applicable Interest from Indian tax authorities and it reiterated its position that the company operations are in compliance with local laws as well as the bilaterally negotiated tax treaty between the Governments of India and Finland, and the company will defend itself vigorously against this claim.

The company had filed a petition with the Delhi High Court last month and had received an interim stay order, as indicated by a NDTV report. However, Nokia had apparently withdrew its application yesterday and the Delhi High Court had directed Nokia to file an appeal with the  Commissioner of Income Tax (Appeals) in the next three days, as indicated by a separate NDTV report.

Financials

Devices and Services Segment: Nokia’s devices and services segment business accounted for €2.9 billion ($3.79 billion) revenue of the company’s net sales for the quarter ending March 31, 2012, a 32% decline year-on-year from €4.24 billion ($5.54 billion) and 25% decline sequentially from €3.85 billion ($5.03 billion). The segment reported operating loss of €42 million ($54.88 million), up from €218 million ($284.86 million) operating loss in Q1-2012. Asia Pacific region accounted for €724 million ($946 million) revenue of the segment’s total revenue, reporting a 23% decline from €945 million ($1.23 billion) revenue reported in the same quarter last year.

Smartphone sales decreased by 32% YoY to €1.16 billion ($1.52 billion) for the quarter while Mobile Phones sales decreased by 31% YoY to €1.59 billion ($2.08 billion) for the quarter.

In terms of volume, Smartphone sales decreased by 49% YoY to 6.1 million units while mobile phones sales decreased by 21% YoY to 55.8 million units. Overall, the mobile device sales decreased by 25% YoY to 61.9 million units. Asia Pacific still accounts for the highest mobile device sales volume, accounting for 23.1 million of the total mobile device sales for the quarter, registering a 11% decline YoY.

The average selling price of smartphones increased by 34% YoY to €191 ($249.6) for the quarter while the average selling price of mobile phones decreased by 15% YoY to €28 ($36.6). Overall, the average selling price decreased by 8% YoY to €47 ($61.4) for the quarter.

HERE segment (previously Location and Commerce): As stated in the previous quarter, Nokia has renamed its Location & Commerce business as HERE business for financial reporting purposes. Nokia’s Here segment accounted for €216 million ($282.25 million) of the company’s net sales for the quarter, down 22% YoY from €278 million ($363.3 million) sales in Q1 2012. The segment reported increased operating loss of €97 million ($126.75 million), from €94 million ($122.83 million) loss in the same quarter last year.

Future Outlook

Nokia expects its Devices & Services non-IFRS operating margin in Q2 2013 to be approximately negative 2% plus or minus four percentage points. The company expects the sequential growth of its Lumia devices to be higher than 27% growth reported in the current quarter, due to the wider availability of Lumia products.

It plans to reduce its its Devices & Services non-IFRS operating expenses to an annualized run rate of around EUR 3.0 billion ($4 billion) by the end of 2013. It also expects the HERE segment’s non-IFRS operating margin to be negative in Q2 2013, due to lower recognized revenues from internal sales which carry higher gross margins.

DownloadNokia Q1 2013 Report