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Nokia (NOK) Warns for Q1, Q2; Shares Plunge

April 11, 2012 8:08 AM EDT Send to a Friend
Nokia (NYSE: NOK) provided preliminary information on certain aspects of its first quarter 2012 financial performance, including a lowered first quarter 2012 outlook for Devices & Services. During the first quarter 2012, multiple factors negatively affected Nokia’s Devices & Services business to a greater extent than previously expected. These factors included:
  • Competitive industry dynamics, which negatively affected net sales in the Mobile Phones and Smart Devices business units, particularly in India, the Middle East and Africa and China; and
  • Gross margin declines, particularly in the Smart Devices business unit.
The impact of these factors on the non-IFRS Devices & Services operating margin in the first quarter 2012 was partially offset by a significant benefit from lower warranty costs.

Nokia currently estimates that its non-IFRS Devices & Services operating margin in the first quarter 2012 was approximately negative 3 percent, compared to the previously expected range of “around breakeven, ranging either above or below by approximately 2 percentage points” primarily due to the factors noted above.

Devices & Services net sales in the first quarter 2012 were EUR 4.2 billion, comprised of Mobile Phones net sales of EUR 2.3 billion (71 million units), Smart Devices net sales of EUR 1.7 billion (12 million units), and Devices & Services Other net sales of EUR 0.2 billion.

Devices & Services gross margin (including Devices & Services Other) for the first quarter 2012 was approximately 25%, with Mobile Phones gross margin of approximately 26% and Smart Devices gross margin of approximately 16%.

At the end of the first quarter 2012, the company’s gross cash and other liquid assets were approximately EUR 9.8 billion, and Nokia’s net cash and other liquid assets were approximately EUR 4.9 billion. The sequential decline in net cash and other liquid assets was driven by Devices & Services, which experienced unfavorable and mostly non-recurring net working capital changes as well as operating losses. Nokia Siemens Networks contributed positively to Nokia’s cash flow in the first quarter 2012 due to net working capital improvements. This was despite Nokia Siemens Networks having a preliminarily estimated non-IFRS operating margin of approximately negative 5 percent in the first quarter 2012, in line with the previously provided outlook.

Nokia expects its non-IFRS Devices & Services operating margin in the second quarter 2012 to be similar to or below the first quarter 2012 level. This outlook reflects that the first quarter 2012 benefit related to lower warranty costs is expected to be non-recurring, as well as expectations regarding a number of factors including:
  • competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units;
  • timing, ramp-up, and consumer demand related to new products; and
  • the macroeconomic environment.
Nokia shares have plunged more than 10 percent amid the updated guidance. The stock last traded at $4.52.




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