Nokia CEO confident Networks unit will continue to improve

Nokia CEO Rajeev Suri said the company's Networks business will begin delivering year-over-year growth in the second half of 2014, despite operating profit at the division slipping 14 per cent annually in the second quarter.

NSN CEO Rajeev Suri

 Nokia CEO Rajeev Suri

The Networks business' non-IFRS operating profit fell to €281 million ($378.5 million) in the second quarter of 2014 from €328 million in the second quarter of 2013, on an 8 per cent drop in sales. Nokia's HERE mapping business fared little better, with non-IFRS operating profit dropping to naught from €8 million in April to June 2013, and sales flat year-on-year.

Nokia noted that non-IFRS figures exclude all "material special items for all periods," and "intangible asset amortization," and adjustments relating to the formation of Nokia Networks and acquisitions completed after June 30, 2008.

A breakdown of the Networks' business sales shows a 6 per cent increase in mobile broadband net sales year-on-year in the second quarter. That growth is offset by a 19 per cent year-over-year decline in global services sales during the period.

Suri shrugged off the drop in operating profit at Networks, noting the business delivered "strong profitability while improving our topline trend." He said the company has raised expectations for the business' underlying profitability "to be at or slightly above our long term target range of 5 to 10 per cent."

Nokia blamed a drop in sales of personal navigation devices (PNDs) and the loss of revenues from Devices & Services--a sale to Microsoft completed early in the second calendar quarter, on April 25--for the flat sales at HERE.

The division enjoyed success in the automotive market, however, with new vehicle registrations up from 2.7 million units in the second quarter of 2013 to 3.3 million in the recent quarter. The division also benefitted from an increase in Microsoft licenses during the quarter, Nokia stated.

Suri said the automotive sector is one of the main areas of investment for HERE, along with enterprise, and consumer markets.

The CEO also noted "the licensing and innovation engine of Nokia Technologies," the company's patent and technology licensing business, "remains very much on track." The division grew operating profit 7 per cent year-on-year to €96 million in the second quarter.

At group level, non-IFRS operating profit fell 19 per cent year on year to €347 million in the second quarter of 2014. Reported operating profit, however, grew from €12 million in April to June 2013, to €284 million in the recent quarter.

The sale of the company's devices and services business boosted Nokia's net profit to €2.51 million in the second quarter, compared to a loss of €226 million in the same period of 2013, the Wall Street Journal reported.

A Nordea Bank analyst told Bloomberg Nokia's second quarter figures were good, but said all eyes will be on the company's ability to maintain margin improvements in the long term.

For more:
- see Nokia's earnings statement
- see this Wall Street Journal article (sub. req.)
- read Nordea Bank's comments on Bloomberg

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