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Nokia’s Q2 2017 results beat market expectations. CEO’s message & outlook for 2017.

Nokia has today posted strong Q2 2017 results and as per analysts, it has beaten the market expectations with its Q2 2017 results. This is what Reuters has to say in its report,

Finnish network equipment maker Nokia reported larger than expected quarterly profits on Thursday thanks to a patent deal with Apple along with improving profitability at its network business but warned its key market would slow.

Second-quarter group earnings before interest and taxes (EBIT) rose 73 percent from a year ago to 574 million euros ($674 million), clearly above analysts’ average forecast of 447 million euros in a Reuters poll.

In his statement, Nokia CEO Rajeev Suri has expressed confidence that Nokia will deliver on its full-year guidance despite some challenges ahead.

CEO’s Statement:

I am proud of the entire Nokia team for delivering strong profitability in the second quarter and group-level net sales that were close to flat year-on-year. Underpinning this result was the excellent performance of Nokia Technologies, as well as robust gross margins and continued topline improvement in Networks. With the good work in the quarter, I remain confident that we will deliver on our full-year guidance of an operating margin of 8-10% in our Networks business.

Additionally, we made further progress in executing on the four pillars of our strategy in the second quarter. In terms of the first pillar, leading in high-performance, end-to-end networks with communication service providers, we saw year-on-year growth in orders in the first half of the year; continued to win the majority of deals we pursued; and landed more large contracts in the first half than we did during the same time period in 2016. Cross-selling also continues to generate new opportunities for us, with several important wins in the quarter, such as our contract to build three Dense Wavelength Division Multiplexing networks for M1 in Singapore.

For the second pillar, expanding sales to new vertical markets, our work is gaining further traction in terms of orders, customers and technology. We saw double-digit growth in orders in most of the verticals we are targeting, and added new customers at a significantly faster rate than one year ago. And, we launched new IP routing products that will put us in a strong competitive position with both our traditional customer base and our new target markets when the products are available at scale next year. The early response from customers to these new products has been excellent, with companies like BT Group and Xiaomi already expressing their intent to purchase.

We are starting to see the results of the extensive work we have done in the third pillar of our strategy, building a strong, stand-alone software business at scale. Q2 sales in our Applications & Analytics business group were up comfortably year-on-year and order momentum was strong.

In the fourth pillar of our strategy, creating new business and licensing opportunities in the consumer ecosystem, the licensing and business partnership agreement that we reached with Apple in the quarter was a clear highlight. You could see the benefit of that agreement in Nokia Technologies’ results, and we look forward to continuing to expand our overall business with Apple in the coming months. We also closed a licensing deal with Xiaomi, a milestone win with a Chinese smartphone vendor, setting the stage for us to engage further with other vendors in the country.

Finally, we expect our primary addressable market with communication service providers to be slightly more challenging in 2017 than earlier forecast. We now expect a decline in the market in the range of 3-5%, versus our earlier view of a low-single digit decline. In addition, we continue to expect our Networks sales to perform in line with the market.

Despite these headwinds, I believe Nokia’s disciplined operating model puts us in a strong position to succeed in conditions of all kinds and continue to deliver solid shareholder value. In addition, we are seeing catalysts in the United States, China and Japan that point to an acceleration of 5G and the commencement of meaningful roll-outs in 2019.

In summary, a good second quarter, some challenges ahead this year, but also reasons to be optimistic about Nokia’s ability to deliver.

Outlook for 2017:

 

Metric

Guidance

Commentary

Nokia

Annual cost savings for Nokia, excluding Nokia Technologies

Approximately EUR 1.2 billion of total annual cost savings to be achieved in full year 20181

Compared to the combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies. Nokia expects approximately EUR 800 million of the cost savings to come from operating expenses and approximately EUR 400 million from cost of sales.

 

Restructuring and associated charges are expected to total approximately EUR 1.7 billion. Restructuring and associated cash outflows are expected to total approximately EUR 2.15 billion.

 

Network equipment swaps

Approximately EUR 900 million in total1

The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokia’s non-IFRS operating profit.

 

Non-IFRS financial income and expenses

Expense of approximately EUR 250 million in full year 2017

Primarily includes net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans, as well as the impact of foreign exchange rate fluctuations on certain balance sheet items.

 

Nokia expects cash outflows related to non-IFRS financial income and expenses to be approximately EUR 200 million in full year 2017.

 

Non-IFRS tax rate

Between 25% and 30% for full year 2017

(update)

Nokia’s non-IFRS tax rate in full year 2017 is expected to be influenced by factors including regional profit mix (new commentary).

(This is an update to earlier guidance and commentary for non-IFRS tax rate for full year 2017 to be around the midpoint of a 30% to 35% range.)

 

Nokia expects cash outflows related to taxes to be approximately EUR 800 million for full year 2017.

(This is an update to the earlier commentary for cash outflows related to taxes to be approximately EUR 600 million for full year 2017. The update is due to a non-recurring tax item.2)

 

Capital expenditures

Approximately EUR 500 million in full year 2017

Primarily attributable to Nokia’s Networks business.

Nokia’s Networks business

Net sales

Decline in line with the primary addressable market in full year 2017

We currently expect market conditions for 2017 to be slightly more challenging than earlier anticipated (new commentary).

Nokia’s outlook for net sales and operating margin for Nokia’s Networks business in full year 2017 are expected to be influenced by factors including:

  • A 3 to 5 percent decline in the primary addressable market for Nokia’s Networks business (This is an update to earlier commentary for a low single digit percentage decline.);
  • Uncertainty related to the timing of completions and acceptances of certain projects, particularly in the second half of 2017 (new commentary);
  • Competitive industry dynamics;
  • Product and regional mix;
  • The timing of major network deployments;
  • Execution of cost savings and reinvestment plans, with operating expenses down on a year-on-year basis; and
  • The level of R&D investment needed to maintain product competitiveness and accelerate 5G (new commentary);

The outlook for Nokia’s Networks business is provided assuming constant foreign exchange rates.

Operating margin

8-10% in full year 2017

 

Nokia Technologies

Net sales

 

Not provided

 

Due to risks and uncertainties in determining the timing and value of significant licensing agreements, Nokia believes it is not appropriate to provide an annual outlook for full year 2017.

For patent and brand licensing, Nokia is now disclosing net sales on a quarterly basis, rather than providing an annualized net sales run rate.

Nokia expects total net sales from digital health and digital media to grow year-on-year in full year 2017, primarily influenced by increased consumer adoption of our digital health and digital media products.

 

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Nayan

Nayan has more than 10 years of experience of covering Technology and innovations. He is a big Nokia fan and Tech disruptions aficionado. He loves to review new cool gadgets and writing about Android, iOS, Gadgets and general Technology stuff. He has been associated with other well-known Tech sites WinCentral and GadgetOx since long.

He currently sports a Lumia 950 XL and Nexus 5X. Other interests include listening to Nu-Metal Hits and Kick-Boxing.
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