Nokia reported a net loss for the second quarter, saying the "challenges" it faces were tougher than expected in the period. After already warning earlier for weak results, the company reported a net loss of EUR 0.10 per share for the three months to June, versus a profit of EUR 0.06 a year earlier. The operating result was a loss of EUR 487 million, versus a profit of EUR 295 million a year ago, and revenues fell to EUR 9.275 billion from EUR 10.003 billion. The company posted negative operating cash flow of EUR 176 million versus a positive EUR 944 million a year earlier.
Its main division Devices & Services saw sales tumble 20 percent to EUR 5.467 billion. The drop was limited by EUR 430 million in royalty income collected from Q2 and other periods. Revenues were up only in Latin America and the Middle East and Afrca, and fell by over 30 percent in Greater China and the rest of Asia. Sales fell 61 percent in North America and 23 percent in Europe. In units, total smartphone sales were down 34 percent from a year ago to 16.7 million, and traditional phones dropped by 16 percent to 71.8 million. The division reported an adjusted operating profit of EUR 369 million, better than the outlook of near breakeven, but almost half the year-earlier amount. This excludes some EUR 572 million in restructuring charges, more of which are expected to follow. The average selling price was EUR 62 per phone, up from EUR 61 a year ago but down from EUR 65 in Q1. The price of traditional phones fell an average 10 percent from Q1, while smartphone prices went down 3 percent sequentially.
Nokia CEO Stephen Elop said the results were "clearly disappointing" but the company was stepping up efforts to improve performance. In Q2, it took action in China and Europe to reduce inventory build-up, worldwide it took a "more responsive approach" to product pricing, it changed important sales management, and retail sales and marketing was intensified. The company said it also saw a positive response to its new dual-Sim phones and plans more such products this year, while its first Windows phone is on track for launch in multiple countries in 2011. On the cost side, Nokia said it expects to exceed its earlier target of EUR 1 billion in operating expense reductions at Devices & Services in 2013. It also targets finishing 2011 with more cash then the EUR 3.9 billion available at the end of June and said it's stepping up efforts to protect and license its intellectual property. For Q3, the company expects an adjusted operating margin of just over breakeven, plus or minus 2 points, for the Devices & Services division. This takes into account continuing competitive challenges and the intensified retail marketing.
