Nokia Siemens charges to profit in Q4 as sales increase, costs drop

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Nokia Siemens Networks reported a record operating margin and surging sales and operating profit in the fourth quarter as its strategy of cutting jobs and units not related to mobile broadband begins to pay off. Nokia (NYSE:NOK) CEO Stephen Elop said that the vendor "had a tremendous and successful 2012" but also said that Nokia is open to "all options" for NSN, according to Reuters.

Nokia Siemens reported an underlying non-IFRS operating profit of $766 million, up from $234 million in the year-ago period and up from around $430 million in the third quarter of 2012. The vendor's net sales grew 14 percent year-over-year and 5 percent from the third quarter to $5.31 billion. Additionally, NSN posted a non-IFRS operating margin of 14.4 percent, up from 4.2 percent in the year-ago period and breaking the previous record of 9.2 percent in the third quarter of 2012. This marks the fifth straight quarter NSN has generated positive cash flow.

During the fourth quarter NSN's sales in North America jumped 45 percent year-over-year to $568 million. The vendor is one of T-Mobile USA's primary vendors for its $4 billion network modernization program, and NSN also recently touted that it was a provider of radio access network (RAN) and mobile management entity (MME) equipment in 11 markets for U.S. Cellular's (NYSE:USM) second wave of LTE launches, which occurred in late 2012.

But the Asia Pacific was NSN's biggest market in the fourth quarter, as it was in the third quarter. The region accounted for around $1.57 billion in NSN sales. NSN said sales of both infrastructure equipment and services grew in Japan.

"Going forward, NSN will continue to see revenue roll in from its LTE contracts with U.S. Cellular and T-Mobile, but its Japan and South Korea LTE business is starting to slow down," TBR analyst Michael Soper wrote in a research note. "While 4Q12 sales in APAC increased 29.4 percent year-to-year, sales in the region were down 7.1 percent sequentially. Typically, 4Q12 sales are the highest of the year due to industry seasonality."

The vendor has been going under a major restructuring since late 2011. Nokia said NSN will reach more than $1.33 billion in cost reductions by the end of 2013 compared to 2011; previously the target was just to hit $1.33 billion. A major part of that has been a plan to cut as many as 17,000 jobs. At the end of the fourth quarter, NSN had around 58,400 employees, a reduction of around 15,300 compared to the year-ago quarter and around 2,200 compared to the end of the third quarter.

Recent reports have indicated that NSN may sell as much as $1 billion in bonds to strengthen its balance sheet. "We are focused on making sure NSN remains a stable partner for its customers and continues to make progress towards becoming a more independent entity," Elop said during Nokia's fourth-quarter earnings conference call, according to a Seeking Alpha transcript.

Looking ahead to the first quarter, Nokia Siemens Networks is expected to post a non-IFRS operating margin of around 3 percent, plus or minus four percentage points. NSN said the forecast is based on the macroeconomic environment, the first quarter being a seasonally weak quarter, its product mix and expected continued improvement under its restructuring program.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Special Report: Wireless in the fourth quarter of 2012

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