Nokia Corp. (NOK), the beleaguered mobile handset developer, has managed to outperform the Zacks Consensus Estimates in the third quarter of 2012. However, its flagship Windows-based smartphones failed to generate any meaningful market traction. Management has provided a disappointing outlook for the ensuing fourth quarter of 2012, which will include the most important holiday season.
Quarterly net revenue was approximately $9,057 million, down 19% year over year, surpassing the Zacks Consensus Estimate of $8,890 million. Quarterly net loss was approximately $1,180 million or a loss of 33 cents per share compared with a net loss of $189 million or 3 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) loss per share of 9 cents was better than the Zacks Consensus Estimate of a loss of 12 cents.
Quarterly gross margin was 27.5% compared with 28.1% in the year-ago quarter. Operating loss in the reported quarter was $721 million, up 711.3% year over year. Quarterly operating margin was a negative 8% compared with a negative 0.8% in the year-ago quarter.
At the end of the third quarter of 2012, Nokia had approximately $10,984 million of cash and cash equivalents compared with $13,641 million at the end of fiscal 2011. Total debt, at the end of the reported quarter was $6,525 million compared with $6,658 million at the end of fiscal 2011.
Devices & Services Segment
Quarterly total revenue was approximately $4,458 million, down 33.9% year over year. Within this segment, Smartdevices (including smartphones and tablets) revenue was $1,221 million, down 55.5% year over year. Mobile Phone revenue was $2,960 million, down 18.8% year over year. Other revenue was $277 million, down 21.9% year over year.
Smartdevices average selling price (ASP) was $194, up 18% year over year. Mobile Phone ASP was $39, down 3% year over year. In the third quarter of 2012, Nokia shipped 6.3 million Smartdevices (including 2.9 million Lumia-series phones) and 76.6 million Mobile Phones, down 63% year over year and 15% year over year, respectively.
Nokia Siemens Network Segment
Quarterly net revenue was approximately $4,381 million, up 2.6% year over year. Quarterly adjusted operating profit was approximately $228 million compared with an operating loss of $143 million in the prior-year quarter. Adjusted operating margin was 5.2% compared with a negative 3.3% in the prior-year quarter.
Location & Commerce Segment
Quarterly net revenue was approximately $332 million, down 6% year over year. Quarterly adjusted operating loss was $70 million, down 34.1% year over year. Adjusted operating margin was a negative 21.1% compared with a negative 30.1% in the year-ago quarter.
Future outlook
For the fourth quarter of 2012, Nokia expects its Devices & Services operating margin to be approximately negative 6%, plus or minus 4%. However, Nokia Siemens Networks segment operating margin is expected to improve in the fourth quarter. Nokia further expects to reduce the operating expense in this segment by more than €1 billion by 2013 from the 2010 level of €5.35 billion.
Recommendation
Nokia is nowhere near to gain market share from Apple Inc.’s (AAPL) iPhone or Google Inc. (GOOG) developed Android-based smartphones. However, the stock price plummeted more than 60% in the last year. We thus maintain our long-term Neutral recommendation on Nokia. Currently, the company has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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