Nokia Corp. (NOK), the largest mobile phone manufacturer of the world, reported second quarter 2010 financial results. Net revenue was approximately $12,806 million, up 1% year-over-year and above the Zacks Consensus Estimate of $12,633 million. This was primarily due to the increase in the Mobile Phones business, aided by an improving line-up of affordable models.
Net income was approximately $517 million or 8 cents per share compared with a net income of $712.6 million or 20 cents per share in the prior-year quarter. However, second quarter 2010 adjusted (excluding special items) EPS of 14 cents was in line with the Zacks Consensus Estimate.
Operating profit was approximately $845 million, down 15% year over year. Operating margin in the same quarter was 6.6% compared with 7.8% in the year-ago quarter. Operating cash flow in the reported quarter was approximately $1,208 million, up 31.8% year over year.
At the end of second quarter 2010, the company had around $12.16 billion of cash and marketable securities compared with $9.51 billion of cash and marketable securities at the end of the prior-year quarter. At June 31, 2010, Nokia’s net debt-equity ratio was -27%, compared with -10% at June 31, 2009.
Devices & Services Segment
Revenues summed up to approximately $8.70 billion, up 3% year over year. This increase was attributable to higher volumes in the majority of its regions driven by a stronger demand, partially offset by a decline in average selling price (ASP). This segment continues to generate the bulk (70%) of total revenue. In the reported quarter, ASP was around $78.1 compared with $87 in the year-ago quarter and $83.5 in the previous quarter. Gross margin was 30.2% compared with 34.0% in the prior-year quarter. Operating margin was 9.5% compared with 12.2% in the year-ago quarter.
In the second quarter 2010, Nokia shipped a total 111.1 million mobile handsets, up 8% year-over-year and up 3% sequentially. In the same quarter, the company shipped 24.0 million smartphones, up 42% year over year and 12% sequentially. Nokia’s global market share in overall mobile handset market was 33% in the second quarter 2010, compared with 35% in the year-ago quarter and 33% in the previous quarter. In the smartphone market, Nokia’s global market share was 41% in the reported quarter remains same both year-over-year and sequentially.
Nokia Siemens Network
Nokia Siemens Networks, a JV between Nokia and Siemens AG (SI). Revenues totaled approximately $3.84 billion, down 5% year over year. The decrease was due to the ongoing industry-wide issue related to security clearances in India and shortages of certain components that are affecting the broader industry. Gross margin was 30.8% compared with 28.0% in the prior-year quarter. Operating profit was $65.3 million compared with an operating profit of just $2.7 million in the prior-year quarter.
Revenue was approximately $323.8 billion, up 71% year over year. The increase was due to improved conditions in the automotive industry and growth in mobile device sales. Gross margin was 81.4% compared with 85.8% in the prior-year quarter. Operating loss was $104 million compared with an operating profit of $25.8 million in the prior-year quarter.
Nokia anticipates that its third quarter 2010 revenues for the Devices & Services segment will be within the range of approximately $8.6 billion to $9.2 billion. Nokia expects operating margin in the range of 7% to 10% for its core Devices and Services segment in third quarter 2010 and projects operating margin in the range of 10% to 11% for fiscal 2010.
Third quarter 2010 revenues for the Nokia Siemens Networks is expected to be between $3.5 billion and $4.0 billion. Operating margin is expected to be between -2% and 2% for Nokia Siemens Networks in third quarter 2010.
For full fiscal 2010, global mobile handset market will likely be up by 10%. Nokia expects to maintain its current market share for mobile handset.
We maintain our Neutral recommendation for Nokia. Currently, it is a Zacks #3 Rank (Hold) stock.