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 EUR 0.21 Nokia's device volumes grow 33% year on year to 88.5 million units NOKIA IN THE THIRD QUARTER 2006
*Q3 2006 special items:
"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
(Comparisons are given to the third quarter 2005 results, unless otherwise indicated.) Nokia Group 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. NOKIA MOBILE DEVICE VOLUME 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 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 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 247 256 118.10. It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding: A) the timing of product and solution deliveries; B) our ability to develop, implement and commercialize new products, solutions and technologies; C) expectations regarding market growth, developments and structural changes; D) expectations regarding our mobile device volume growth, market share, prices and margins; E) expectations and targets for our results of operations; F) the outcome of pending and threatened litigation; G) expected timing, scope and effects of the merger of Nokia's and Siemens' communications service provider businesses; and H) statements preceded by "believe," "expect," "anticipate," "foresee," "target," "estimate," "designed," "plans," "will" or similar expressions are forward-looking statements. Because these statements involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences include, but are not limited to: 1) the extent of the growth of the mobile communications industry, as well as the growth and profitability of the new market segments within that industry which we target; 2) the availability of new products and services by network operators and other market participants; 3) our ability to identify key market trends and to respond timely and successfully to the needs of our customers; 4) the impact of changes in technology and our ability to develop or otherwise acquire complex technologies as required by the market, with full rights needed to use; 5) competitiveness of our product portfolio; 6) timely and successful commercialization of new advanced products and solutions; 7) price erosion and cost management; 8) the intensity of competition in the mobile communications industry and our ability to maintain or improve our market position and respond to changes in the competitive landscape; 9) our ability to manage efficiently our manufacturing and logistics, as well as to ensure the quality, safety, security and timely delivery of our products and solutions; 10) inventory management risks resulting from shifts in market demand; 11) our ability to source quality components without interruption and at acceptable prices; 12) our success in collaboration arrangements relating to development of technologies or new products and solutions; 13) the success, financial condition and performance of our collaboration partners, suppliers and customers; 14) any disruption to information technology systems and networks that our operations rely on; 15) our ability to protect the complex technologies that we or others develop or that we license from claims that we have infringed third parties' intellectual property rights, as well as our unrestricted use on commercially acceptable terms of certain technologies in our products and solution offerings; 16) general economic conditions globally and, in particular, economic or political turmoil in emerging market countries where we do business; 17) developments under large, multi-year contracts or in relation to major customers; 18) exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our reporting currency, and the US dollar, the Chinese yuan, the UK pound sterling and the Japanese yen; 19) the management of our customer financing exposure; 20) our ability to recruit, retain and develop appropriately skilled employees; 21) the impact of changes in government policies, laws or regulations; and 22) satisfaction of the conditions to the merger of Nokia's and Siemens' communications service provider businesses, and closing of transaction, and Nokia's and Siemens' ability to successfully integrate the operations and employees of their respective businesses; as well as 23) the risk factors specified on pages 12 - 22 of the company's annual report on Form 20-F for the year ended December 31, 2005 under "Item 3.D Risk Factors." Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to update publicly or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nokia, Helsinki - October 19, 2006 Media and Investor Contacts: Corporate Communications, tel. +358 7180 34495 or +358 7180 34900 Investor Relations Europe, tel. +358 7180 34289 Investor Relations US, tel. +1 914 368 0555 www.nokia.com - Nokia plans to report Q4 and full-year 2006 results on January 25, 2007. - Nokia will publish four interim reports in 2007. - The Annual General Meeting is scheduled to be held on May 3, 2007. |
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