*Q3 2006 special items:
- Mobile Phones operating profit includes charges of EUR 128 million primarily related to the restructuring of the CDMA business and associated asset write-downs.
- Excluding these special items, diluted EPS was EUR 0.23.
**Q3 2005 special items:
- Nokia operating profit included a gain of EUR 61 million related to the divestiture of Nokia's Tetra business (EUR 42 million in Networks and EUR 19 million in Multimedia).
- Networks operating profit included a gain of EUR 18 million related to the partial sale of a minority investment.
- Group Common Expenses included a EUR 8 million gain related to real estate sales.
- Excluding these special items, diluted EPS was EUR 0.19.
THIRD QUARTER 2006 HIGHLIGHTS
- Nokia net sales up 20% year on year.
- Nokia operating profit up 16% and EPS diluted up 21% year on year (excluding special items).
- Estimated industry device volumes of 243 million units, up 6% sequentially and up 22% year on year.
- Nokia device volumes of 88.5 million units, up 13% sequentially and up 33% year on year.
- Nokia estimated device market share 36%, up from 34% in Q2 2006 and 33% in Q3 2005.
- Nokia device ASP of EUR 93, down from EUR 102 in Q2 2006.
- Networks had year on year net sales growth of 16%, faster than the market.
- Nokia announced the acquisitions of Loudeye and gate5.
- Nokia diluted EPS was EUR 0.21, and excluding special items was EUR 0.23.
OLLI-PEKKA KALLASVUO, NOKIA CEO:
"Nokia delivered 20% net sales growth year on year, with excellent market share gains in our device business. We saw impressive share gains in the fast growing emerging markets, where we continued to build on our clear number one position. Catering mostly to the emerging markets, our entry-level device business performed extremely well, driven by outstanding volume growth and a solid product portfolio. The strong growth in the entry-level coupled with a lower percentage of sales in higher end products impacted our margins.
In our multimedia business, we continued to perform well, with 45% year on year net sales growth in the third quarter. In infrastructure, Networks net sales grew faster than the market and we remain focused on improving profitability. Nokia and Siemens have made good progress toward the merger of Nokia's Networks business group and Siemens' carrier-related operations and continue to expect that operations will start in January."
INDUSTRY AND NOKIA OUTLOOK FOR THE FOURTH QUARTER AND FULL YEAR 2006
- Nokia expects industry mobile device volumes in the fourth quarter 2006 to grow by 15% or more sequentially.
- We expect Nokia's device market share in the fourth quarter 2006 to be approximately at the same level sequentially.
- Sales in our networks business are expected to grow sequentially in the fourth quarter, but at a rate less than previous years.
- Nokia expects that the mobile device market volume will be approximately 970 million units in 2006, while our estimate for 2005 was approximately 795 million units.
- We continue to expect the device industry to experience value growth in 2006, but expect some decline in industry ASPs, primarily reflecting the increasing impact of the emerging markets and competitive factors in general.
- Nokia continues to expect moderate growth in the mobile infrastructure market in euro terms in 2006.
- Nokia continues to target an increase in its 2006 market share in mobile devices and infrastructure.
Q3 2006 FINANCIAL HIGHLIGHTS
(Comparisons are given to the third quarter 2005 results, unless otherwise indicated.)
Nokia Group (NYSE: NOK)
Nokia's third quarter 2006 net sales increased 20% to EUR 10.1 billion, compared with EUR 8.4 billion in the third quarter 2005. At constant currency, group net sales would have increased 18%.
Nokia's third quarter 2006 operating profit decreased 4% to EUR 1 100 million (including the negative impact of EUR 128 million in special items), compared with EUR 1 149 million in the third quarter 2005 (including the positive impact of EUR 87 million in special items). Nokia's third quarter 2006 operating margin was 10.9% (13.7%), including the impact of the respective special items, and 12.2% (12.6%) excluding the special items.
Operating cash flow for the third quarter 2006 was EUR 1.0 billion, compared with EUR 1.2 billion for the third quarter 2005, and total combined cash and other liquid assets were EUR 7.9 billion, compared with EUR 9.9 billion at December 31, 2005. As of September 30, 2006, our net debt-equity ratio (gearing) was 67%, compared with -77% at December 31, 2005.
Mobile devices
In the third quarter 2006, the total mobile device volume achieved by our Mobile Phones, Multimedia and Enterprise Solutions business groups reached 88.5 million units, representing 33% year on year growth and a 13% sequential increase. The overall industry volume for the same period reached an estimated 243 million units, representing 22% year on year growth and a 6% sequential increase.
Converged device (smartphone) industry volumes increased to an estimated 19.9 million units, compared with an estimated 14 million units in Q3 2005. Nokia's own converged device volumes rose to 10.4 million units, compared with 7.1 million units in Q3 2005. The converged device segment continued to be one of the fastest growing areas in mobile device volumes globally. Nokia Nseries volumes grew strongly, shipping more than 4 million units during the quarter.
The following chart sets out Nokia's mobile device volumes for the periods indicated, as well as the year on year and sequential growth rates by geographic area.
Based on our preliminary market estimate, Nokia's market share for the third quarter 2006 was 36%, compared with 33% in the third quarter 2005 and 34% in the second quarter 2006. Nokia's year on year market share increase was driven primarily by strong gains in the emerging markets, particularly Latin America, China and Asia-Pacific, that more than offset market share declines in Middle East & Africa and to a lesser extent in Europe and North America. Sequentially, Nokia grew its market share most notably in Latin America and Asia-Pacific, followed by Middle East & Africa, Europe, North America and mainland China.
Nokia's average selling price in the third quarter 2006 was EUR 93, down from EUR 102 in the third quarter 2005 and EUR 102 in the second quarter 2006. Our lower ASP in the third quarter 2006 was primarily the result of a significantly higher proportion of entry-level device sales. Sequentially, ASPs were also impacted by a lower percentage of sales in higher end products. The higher proportion of entry-level device sales was driven by stronger than expected market growth in the emerging markets and significant Nokia share gains in those same markets.
Business Groups
Mobile Phones: Third quarter 2006 net sales increased 14% to EUR 5.9 billion, compared with EUR 5.2 billion in the third quarter 2005, driven by strong volume growth, especially in the entry level, and Nokia's ability to capture incremental volumes with its competitive entry-level product portfolio and strong logistics. Net sales increased in all regions year on year, with growth strongest in Latin America, China and Asia-Pacific.
Mobile Phones operating profit decreased 11% and totaled EUR 779 million, compared with EUR 880 million in the third quarter 2005, with an operating margin of 13.1% (16.9%). Reported third quarter 2006 operating profit included charges of EUR 128 million primarily related to the restructuring of Nokia's CDMA business and associated asset write-downs. Operating profit excluding these charges for the third quarter 2006 was EUR 907 million, with an operating margin of 15.3%. The slight increase in operating profit, excluding these charges, for the third quarter 2006 was the result of strong sales.
Multimedia: Third quarter 2006 net sales increased 45% to EUR 2.1 billion, compared with EUR 1.4 billion in the third quarter 2005. Net sales increased year on year in all regions except North America and Latin America, where sales decreased. Multimedia net sales more than doubled year on year in China and Asia-Pacific. Net sales growth was driven by high volumes of Nokia Nseries multimedia computers.
Multimedia third quarter operating profit grew 49% to EUR 366 million, compared with EUR 245 million in the third quarter 2005, with an operating margin of 17.5% (16.9%). Operating profit growth in the third quarter 2006 was driven by strong net sales growth and positive operating leverage compared to the third quarter 2005.
Enterprise Solutions: Third quarter 2006 net sales increased 27% to EUR 257 million, compared with EUR 203 million in the third quarter 2005. Net sales increased year on year in all regions except Middle East & Africa and Latin America, where sales decreased. Net sales were positively impacted by strong year on year volume growth of mobile devices, especially the Nokia Eseries.
In the third quarter 2006, Enterprise Solutions had an operating loss of EUR 65 million, compared with an operating loss of EUR 37 million in the third quarter 2005. The increase in the operating loss was caused primarily by a higher marketing expense than in the third quarter 2005.
Networks: Third quarter 2006 net sales increased 16% to EUR 1.8 billion, compared with EUR 1.6 billion in the third quarter 2005. The increase in Networks year on year net sales was primarily driven by strong growth in the emerging markets, especially in Middle East & Africa where sales more than doubled. Net sales declined year on year in North America and to a lesser extent in Latin America.
Networks third quarter operating profit decreased 17% to EUR 131 million, compared with EUR 157 million in the third quarter 2005, with an operating margin of 7.3% (10.1%). The operating profit in the third quarter 2006 increased, in comparison to the third quarter 2005 excluding the special items during that quarter, as a result of strong sales.
Q3 2006 OPERATING HIGHLIGHTS
Mobile Phones
- Nokia expanded its music device offering by introducing the Nokia 5300 XpressMusic, the Nokia 3250 XpressMusic, and the Nokia 5200.
- Nokia unveiled three new mobile phones from the L'Amour Collection: the Nokia 7373, the Nokia 7360 and Nokia's first 3G fashion product, the Nokia 7390.
- Nokia unveiled its latest premium mobile phone, the Nokia 8800 Sirocco Edition.
- Further strengthening its portfolio of 3G devices, Nokia unveiled the Nokia 6288, a 3G slide phone that adds high-quality video playing capabilities to its mix of features.
- Expanding its portfolio of clamshell mobile phones, Nokia introduced the Nokia 6085 camera phone at a very competitive price.
Multimedia
- Nokia announced three new Nokia Nseries products: the Nokia N75 clamshell, the Nokia N80 Internet Edition and the HSDPA Nokia N95.
- Nokia announced music editions of three Nokia Nseries devices: the Nokia N70 Music Edition, the Nokia N73 Music Edition and the Nokia N91 8GB.
- Nokia announced the acquisitions of Loudeye, a global leader in digital music platforms, and gate5, a leading supplier of mapping and navigation software.
- The Nokia N73 (SoftBank 705NK) was chosen for Softbank Mobile's line-up in Japan.
- Nokia announced cooperation with Microsoft and Yahoo! to bring Windows Live and Yahoo! Search into the Nokia Mobile Search platform.
- Nokia launched the Music Recommenders community.
- Nokia and Motorola announced a mobile TV cooperation in DVB-H enabled handsets and network compatibility testing.
Enterprise Solutions
- Nokia surpassed one million licenses sold to date in wireless email.
- Nokia saw a 33% sequential increase in licenses sold and some new operator wins in the third quarter.
- We announced that TietoEnator, a Scandinavian ICT company, will resell Intellisync Wireless Email and Intellisync Device Management.
- NTT DoCoMo launched a consumer PIM back-up and restore service using our Intellisync SyncML platform, signing up 100,000 subscribers during the quarter.
- Launched and started shipments of the Nokia E62 in the Americas with Cingular.
- Launched the Nokia for Business Channel Program to expand the routes to market for corporate mobility solutions.
Networks
- Nokia announced several contracts in the Chinese market, including a EUR 580 million GSM/GPRS network expansion frame agreement with China Mobile; a USD 150 million GSM/GPRS expansion contract with Henan MCC; and GSM network expansion deals with Jiangxi MCC and Yunnan MCC.
- Nokia won HSDPA contracts with customers including mobily and STC in Saudi Arabia, Singapore's MobileOne, Taiwan Mobile, Greece's TIM Hellas, Indonesia's Telkomsel, and LMT in Latvia. Altogether Nokia has over 30 HSDPA references globally.
- Nokia announced Managed Services contracts with mobily and Telkomsel. To date, Nokia has won close to 60 Managed Service contracts globally.
- Nokia unveiled the first public deals for its Flexi WCDMA Base Station, winning contracts with TIM Hellas, Telkomsel, and Bulgaria's Vivatel.
- Nokia announced its 100th mobile softswitch customer, France's SFR. Nokia also announced it will host the world's first commercial OMA Push-to-Talk over Cellular (PoC) and Presence services for
3 Scandinavia in Sweden and Denmark.
- Nokia announced a USD 150 million contract with Canada's TELUS to deploy a next-generation IP broadband access network.
For more information on the operating highlights mentioned above, please refer to related press announcements, which can be accessed at the following link: http://www.nokia.com/press.
NOKIA IN THE THIRD QUARTER 2006
(International Financial Reporting Standards (IFRS) comparisons given to the third quarter 2005 results, unless otherwise indicated.)
Nokia's net sales increased 20% to EUR 10 100 million (EUR 8 403 million). Sales of Mobile Phones increased 14% to EUR 5 949 million (EUR 5 203 million). Sales of Multimedia increased 45% to EUR 2 092 million (EUR 1 447 million). Sales of Enterprise Solutions increased 27% to EUR 257 million (EUR 203 million). Sales of Networks increased 16% to EUR 1 804 million (EUR 1 555 million).
Operating profit decreased to EUR 1 100 million (EUR 1 149 million), representing an operating margin of 10.9% (13.7%). Operating profit in Mobile Phones decreased 11% to EUR 779 million, including charges of EUR 128 million primarily related to the restructuring of the CDMA business and associated asset write-downs (EUR 880 million), representing an operating margin of 13.1% (16.9%). Operating profit in Multimedia increased 49% to EUR 366 million (EUR 245 million, including a gain of EUR 19 million related to the divestiture of Nokia's Tetra business), representing an operating margin of 17.5% (16.9%). Enterprise Solutions reported an operating loss of EUR 65 million (operating loss of EUR 37 million). Operating profit in Networks decreased 17% to EUR 131 million (EUR 157 million, including a gain of EUR 42 million related to the divestiture of Nokia's Tetra business and a gain of EUR 18 million related to the partial sale of a minority investment), representing an operating margin of 7.3% (10.1%). Common Group expenses totaled EUR 111 million (EUR 96 million, including a EUR 8 million gain related to real estate sales).
Financial income was EUR 34 million (EUR 63 million). Profit before tax and minority interests was EUR 1 145 million (EUR 1 218 million). Net profit totaled EUR 845 million (EUR 881 million). Earnings per share increased to EUR 0.21 (basic) and to EUR 0.21 (diluted), compared with EUR 0.20 (basic) and EUR 0.20 (diluted) in the third quarter of 2005.
NOKIA IN JANUARY - SEPTEMBER 2006
(International Financial Reporting Standards (IFRS) comparisons given to the January - September 2005 results, unless otherwise indicated.)
Nokia's net sales increased 23% to EUR 29 420 million (EUR 23 858 million). Sales of Mobile Phones increased 21% to EUR 17 693 million (EUR 14 594 million). Sales of Multimedia increased 45% to EUR 5 741 million (EUR 3 957 million). Sales of Enterprise Solutions increased 3% to EUR 726 million (EUR 708 million). Sales of Networks increased 14% to EUR 5 269 million (EUR 4 606 million).
Operating profit increased to EUR 3 969 million (EUR 3 271 million), representing an operating margin of 13.5% (13.7%). Operating profit in Mobile Phones increased 12% to EUR 2 843 million (EUR 2 538 million), representing an operating margin of 16.1% (17.4%). Operating profit in Multimedia increased 89% to EUR 993 million (EUR 526 million), representing an operating margin of 17.3% (13.3%). Enterprise Solutions reported an operating loss of EUR 194 million (operating loss of EUR 122 million). Operating profit in Networks increased 16% to EUR 680 million (EUR 587 million), representing an operating margin of 12.9% (12.7%). Common Group expenses totaled EUR 353 million (EUR 258 million).
In the period from January to September 2006, net financial income was EUR 163 million (EUR 244 million). Profit before tax and minority interests was EUR 4 155 million (EUR 3 518 million). Net profit totaled EUR 3 033 million (EUR 2 543 million). Earnings per share increased to EUR 0.74 (basic) and to EUR 0.74 (diluted), compared with EUR 0.58 (basic) and EUR 0.58 (diluted).
PERSONNEL
The average number of employees from January to September 2006 was 64 342. At September 30, 2006, Nokia employed a total of 67 693 people (58 874 people at December 31, 2005).
SHARES AND SHARE CAPITAL
Nokia repurchased through its share repurchase plan a total of 46 010 000 Nokia shares on the Helsinki Stock Exchange at an aggregate price of approximately EUR 719.9 million, and an average price of EUR 15.65 per share, during the period from July 21, 2006 to September 22, 2006. The price paid was based on the market price at the time of repurchase. The shares were repurchased to be used for the purposes specified in the authorization held by the Board. The aggregate par value of the shares purchased was EUR 2 760 600, representing approximately 1.1% of the share capital of the company and of the total voting rights. These new holdings did not have any significant effect on the relative holdings of the other shareholders of the company, nor on their voting power.
Nokia was informed that the holdings of The Capital Group Companies, Inc. had fallen below 5% of the share capital of Nokia on September 15, 2006, when it and its subsidiaries held through their clients a total of 200 020 102 Nokia shares, corresponding to approximately 4.89% of the share capital of Nokia. Further, Nokia was informed that the holdings of the Capital Group Companies, Inc. had again exceeded 5% of the share capital of Nokia on September 21, 2006. Then, it and its subsidiaries held through their clients a total of 204 960 602 Nokia shares, which corresponded to approximately 5.01% of the share capital of Nokia. The Capital Group Companies, Inc. is a holding company for several subsidiary companies engaged in investment management activities. Its holding in Nokia shares consists of both ADRs and ordinary shares.
On September 30, 2006, Nokia and its subsidiary companies owned 84 463 993 Nokia shares. The shares had an aggregate par value of EUR 5 067 839.58, representing approximately 2.1% of the share capital of the company and of the total voting rights. The total number of shares on September 30, 2006 was 4 094 368 651 and the share capital was EUR 245 662 119.06.
