Nokia Q1 2009 results - profits down, margins steady

Nokia today released its Q1 2009 results. Nokia had net sales of EUR 9.3 billion, down 27% year on year and down 27% sequentially (down 24% and up 25% at constant currency). Nokia sold 13.7 million converged (S60) devices, down from 14.6 million in Q1 2008 and 15.1 million in Q4 2008, of these 5 million were Nseries and 3 million were Eseries. An individual device highlight was the 5800 which sold 2.6 million units. Nokia's industry outlook sees similar device volumes and market share for Q2, but expect overall conditions to improve in the second half of the year

Olli-Pekka Kallasuvo, Nokia CEO, said:

"In what has been an exceptionally tough environment, we continue to invest in a focused manner in consumer Internet services delivered across our broad portfolio of mobile devices. Combined, these solutions will drive our future growth. As an example in Q1, I am especially pleased with the performance of our first mass market touch product, the Nokia 5800 XpressMusic. Together with Comes With Music, it is a great example of Nokia providing solutions that consumers value.

Regarding the health of the overall mobile device market, the inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors. This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter."

Points of interest:

Net profits fell to EUR 122 million, down from EUR 1.2 billion year on year. The fall in profits was slightly more than anticipated, but margins (gross margins at 33.8%) were ahead of expectations. Nokia Siemens Network performance was poor which dragged down the overall results, but the devices and services division performed slightly ahead of expectations. Consequently, at the time of writing, the share price was up about 7%.
Nokia mobile device volumes were 93.2 million units, down 19% year on year and down 18% sequentially. This is set against estimated industry volumes of of 255 million units, down 16% year on year and down 14% sequentially. Nokia's market share was estimated at 37%, the same as Q4 2008 and down from 39% in Q1 2008. Nokia expect a similar market share in Q2 2009, but expects increased market share for later in the year.
Services and software net sales of EUR 150 million, down 5% sequentially and up 79% year on year. This reflects reasonably good performance from Nokia's service strategy in the context of overall results.
Gross margins in devices and services was flat sequentially at 33.8% and down from 38.5% year on year.
Eseries remained strong at 3 million units (same as previous quarter); this takes total Eseries device sales in the last year 11 million units. This is a reflection of the continued success of the Nokia E71. With the E71x and E75 due out this quarter good Eseries performance looks set to continue.
Nseries sales were very poor at 5 million units (down from 8 million in Q4); this takes total Nseries sales in the last year to 32 million. This reflects a weakness is Nokia's Nseries portfolio and increasing competition from Apple, HTC, Samsung and LG.
Nokia sold 2.6 million Nokia 5800 units. This takes total sales to 3 million. This reflects Nokia's relative strength in the mid tier market for converged devices (open mobile platform devices). Overall numbered converged device sales were 5.7 million. It is worth noting that if you add the 5800 sales to the Nseries numbers the results are more in line with previous quarters and suggests that Nokia's mid tier smartphones may be canabalising sales of Nseries phones.

Nokia's reduced sales and market share was primarily driven by economic conditions, which has resulted in weaker consumer and corporate spending and constrained credit availability. It is also worth noting that the sequential decline also reflect the traditional seasonal decline (usually around 10%).

Nokia noted that 'extensive destocking by operators and distributors of their mobile device inventories adversely affected sales volumes by manufacturers, including Nokia, during the first quarter 2009'.

Nokia Mobile Device Volume by Geographic Area:

(million units)	Q1/2009	Q1/2008	YoY Change	Q4/2008	QoQ Change
Europe	22.3	25.7	-13.2%	34.7	-35.7%
Middle East & Africa	14.8	20.2	-26.7%	18.2	-18.7%
Greater China	17.9	21.0	-14.8%	12.9	38.8%
Asia-Pacific	28.2	34.1	-17.3%	29.9	-5.7%
North America	3.4	2.6	30.8%	4.1	-17.1%
Latin America	6.6	11.9	-44.5%	13.3	-50.4%
Total	93.2	115.5	-19.3%	117.8	-17.6%

The average device selling price was EUR 65, down from EUR 71 in Q4. This was due to general price pressures and weaker than expected Nseries device sales.

Notes from the conference call

Destocking has meant that 'stock reserves' have decreased from 5-6 weeks to 4-5 weeks. Destocking appears to be over in most markets, which should lead to less market volatility. However it is too early to tell whether consumer spending has reached the bottom.
Nokia 5800 sales of 2.6 million, which was some what limited by manufacturing capacity. This has largely been solved and more than 1 million 5800's are being shipped per month.
Comes with Music has launched successfully in Australia and Singapore, especially when bundled with the 5800. Early trends are show consumers downloading both old and new songs, this suggests CwM can help labels monetise their back catalog. Approximately 20% of downloads have been over the air, suggesting potential data revenue for operators. In Singapore Comes with Music will increase the value of the digital music market by 30%.
Nokia are confident that 'our high end portfolio is headed in the right direction'. The fastest growing smartphone segments are touch and QWERTY and Nokia plan to bring 'a much wider range' of such devices in the future. Nokia also highlighted the strength of the current portfolio - the 5800 captured an estimated 20% of the overall touch market and the E71 continued to sell strongly.
3.3 million Eseries devices were shipped in Q1. E75, E55 on the way and further introductions to come.
In general there will be more mid-range and high end smartphones with a focus on combining them with Nokia services. However there is a lot to do and Nokia 'needs to move faster'.
Tying in with QWERTY devices, the Nokia Messaging product was highlighted as a strong conumer email prouct offering, with attention drawn to deals with operators including Telefonica, Vodafone, Orange and SingTel.
Most service revenue currently comes in conjunction with device sales (i.e. included with a device).
Good progress is being made on cost cutting. Rick Simonson highlighted salary freeze, restricted travel, cuts in R&D and a total of 3,000 job losses. Nokia will continue to prune it device portfolio and manufacturing capacity as necessary. He also noted there had been good control over discretionary expenses in Q1, but expected a small rise in Q2 due to marketing costs associated with device launches.

Nokia Q1 2009 results - profits down, margins steady

Points of interest:

Notes from the conference call

See also