Nokia maintains small opg profit as Lumia sales up 27% in Q1

Nokia reported a continued decline in results in the first quarter, but managed to maintain a small operating profit and improve sales of its flagship Lumia smartphones. Revenues fell 20 percent from a year earlier to EUR 5.85 billion, while the adjusted operating result was a profit of EUR 181 million versus a loss of EUR 258 million a year ago. The net loss narrowed to EUR 0.07 per share from EUR 0.25. 

The main Devices & Services division posted an adjusted operating profit of EUR 4 million, on sales down 32 percent to EUR 2.89 billion. On a sequential basis, revenues were higher only in Greater China, while on an annual basis, revenues from North America improved, while all other regions were lower. Nokia attributed both the regional improvements to higher smartphone sales.

While total smartphone sales were down 49 percent annually and 8 percent from Q4 to 6.1 million units, Nokia managed to improve Lumia sales 27 percent sequentially to 5.6 million. Around two-thirds of the Lumia devices shipped ran Windows Phone 8. This helped drive an increase in the average selling price for smart devices to EUR 191, from EUR 143 a year ago and EUR 186 in Q4. 

Figure 1: Nokia Lumia sales, in millions of units. Source: Nokia IR. 

Feature phone sales were down 21 percent year-on-year and 30 percent from Q4 to 55.8 million units, with Nokia blaming stronger-than-usual seasonality and tough competition. The total included 5.0 million of its Asha phones for emerging markets, down 46 percent from Q4 amid growing competition on the low-end smartphone market. The average selling price continued to drop, down 10 percent from Q4 to EUR 28.

The location services division HERE posted revenues down 22 percent from a year earlier to EUR 216 million, and the adjusted operating margin moved to a negative 2.3 percent from a positive 12.9 percent a year ago. The margin is expected to remain negative in Q2, due to lower internal sales, Nokia said. 

Nokia said the difficult market conditions are expected to continue in Q2, when Devices & Services is expected to post a negative adjusted operating margin of around 2 percent, plus or minus four percent points. Operating costs will increase at the division on the continued ramp-up of Lumia sales, while demand for feature phones is expected to remain weak. However, the company expects continued improvement in Lumia shipments, with sequential growth forecast to be higher in Q2 than the 27 percent in the past quarter thanks to wider availability of new models. 

The company posted positive operating cash flow in the quarter thanks to Nokia Siemens Networks. Nokia's net cash position improved by EUR 120 million from the end of 2012 to a total EUR 4.48 billion.