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Nokia refocuses on NSN (telecom equipment), advanced technology, and mapping services as a leaner firm

Samsung Electronics Comp., Ltd. (KSC:005930) sold 85 million smartphones in Q3 2013, a bump of 20 percent, but it saw shipments of its flagship Galaxy S4 fall from 22 million (in Q2) to 18 million units (in Q3), according to analysts.  Apple, Inc. (AAPL) meanwhile, saw 33.8 million iPhones sold in Q3 (Apple's fiscal Q4 2013), down substantially from the 37.4 million units moved in Q2 (Apple's fiscal Q3 2013).

The sales of Nokia Oyj.'s (HEX:NOK1V) Devices Group -- now a subsidiary of Microsoft Corp. (MSFT) -- were just released in its quarterly earnings report.  The figures might seem a drop in the bucket comparatively, with 8.8 million units sold.  But that's substantially more than the 8 million units The Wall Street Journal predicted, and a bullish 19 percent growth over the 7.4 million Lumias Nokia moved in Q2 2013.  Nokia Devices also shipped 55.8 million feature phones in the Asha and other low-end series.

Overall smartphone sales were one driver that helped Nokia enjoy its fifth consecutive profitable quarter, evidence that the company's 2011-era woes are in the rear view mirror.  While a smaller company, critics may wish to reevaluate the performance of "Trojan horse" CEO Stephen Elop (now EVP of Microsoft's Devices Division).

The Nokia Group enjoys a health 3.8 percent operating margin and pulled in €5.6B ($7.7B USD) in revenue.  Operating profit (non-IFRS) was €215M ($296M USD), which was slashed by €97M ($133M USD) on restructuring charges, to settle at €115M ($158 USD).  The company saw an extremely small net loss per share with its restructuring charges (yet is still viewed as profitable due to its operating profitability) at -€0.02 per share (roughly -$0.0275 USD per share).

Out: Nokia Devices -- this profitable, growing unit transfers to Microsoft in Q4.

While this is Nokia's last quarter in charge of Nokia Devices (which will now transfer to Microsoft's balance sheet), it still has plenty to look forward to.  The Nokia Group leveraged the ($7.2B USD) Nokia Devices buyout by Microsoft to help pay off its €1.7B ($2.34B USD) buyout of Siemens AG's (ETR:SIE) share in Nokia Solutions and Networks (NSN).

While Nokia's devices brand and legacy will live on with Microsoft -- and by all signs is among the hottest growth properties in this sector -- Nokia Oyj. is turning its focus to the business of providing underlying phone network infrastructure via its now solely owned NSN subsidiary.  The telecommunications equipment market is not without its own fierce competition and ups and downs, but is generally less volatile and brand image sensitive than the consumer electronics market.

Nokia SiemensIn: Nokia Solutions Network (NSN) -- now solely owned by Nokia [Image Source: Telegraph]

NSN sales and profit were down in Q3 2013, but overall NSN has posted six profitable quarters and appears focused and stabilized.  With the Siemens and Microsoft transactions wrapping up Nokia is free to focus primarily on NSN and HERE (Nokia's location services) -- two key moneymakers that Nokia hopes to patiently grow.  NSN significantly downsized in 2011, laying off 17,000 workers, but that effort has helped the smaller company return to profitability in the telecommunications equipment market.

Finnish native Risto Siilasmaa, Nokia's chairman and interim CEO cheers:

Subject to the planned completion of the Microsoft transaction, Nokia will have three established businesses: NSN, HERE and Advanced Technologies.  Our strategy work is making good progress and it has already become clear that there are meaningful opportunities for all of our business areas: NSN, HERE and Advanced Technologies. In all of these businesses, we have strong assets that we continue to invest in for the long term benefit of our customers and shareholders.

Ristp Siilsmaa
Risto Siilsmaa, Nokia interim CEO and board chairman

Timo Ihamuotila, Nokia's CFO and Interim President, comments:

The third quarter was among the most transformative in our company's history. We became the full owner of NSN and we agreed on the sale of our handset operations to Microsoft, transactions which we believe will radically reshape the future of Nokia for the better. Subject to the completion of the Microsoft transaction, Nokia will have significantly improved earnings profile, strong financial position and a solid foundation from which to invest. We are pleased that NSN and HERE both generated solid profitability in what was a seasonally weak third quarter and at a time when we continue to make significant R&D investments into future growth opportunities.

The future looks bright for Nokia and shareholders have responded enthusiastically.  As, mentioned it's not all good news -- there have been layoffs and Nokia's balance sheet continues to be hit by the expense of these layoffs (referred to as "restructuring expenses").  But Nokia earned praise for its positively humane policy of offering laid off employees up to $30K in low-interest seed loans -- an unusual approach seldom seen in America's corporate world, where companies all too often look to squeeze every dime out of their beleagured workforce.

And Nokia's strategy as a leaner, more focused competitor has ultimately worked, and prevented a potentially much worse fate had it refused to downsize and tried to compete as a larger company against telecommunications and mobile device OEMs such as Samsung, ZTE Corp. (SHE:000063) (China), and Huawei Technologies Comp. (SHE:002502) (China).

Source: Nokia [PDF[





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