NSN records operating profit, but Q2 sales fall 17%

Nokia Siemens Networks achieved a second-quarter 2013 operating profit of $10.48 million vs. an operating loss of $295.62 million during 2012's second quarter, but the infrastructure vendor recorded a 17 percent year-over-year decline in sales to $3.64 billion.

In addition, NSN's sequential second-quarter net sales decreased 1 percent. Nokia (NYSE:NOK), which shares NSN ownership with Siemens, said the lower sales figures reflected NSN's focused strategy which led to divestments of businesses not consistent with NSN's strategic focus, as well as the exiting of certain customer contracts and countries. Excluding these two factors, NSN's net sales in the second quarter 2013 actually increased by 4 percent on a sequential basis, with higher sales in both global services and mobile broadband.

NSN achieved underlying profitability for the fifth consecutive quarter, with second-quarter non-IFRS operating margin of 11.8 percent, reflecting record non-IFRS gross margin. This exceeded the earlier expectation for NSN's non-IFRS operating margin, which was targeted at 5 percent, plus or minus four percentage points. Nokia noted NSN is self-funding in all aspects of its operations.

On July 1, Nokia agreed to pay $2.21 billion to acquire Siemens' 50 percent stake NSN. The transaction is expected to close during the third quarter, at which time NSN will become a wholly owned subsidiary of Nokia.

Nokia has obtained committed bank financing for a $1.57 billion bridge loan backing the acquisition. Reuters citing as its source "bankers," reported that loan is priced on the high end--paying up to 925 basis points over Libor--as Nokia tries to encourage lenders to increase their exposure. The deal is being underwritten on a sole basis by JP Morgan. The balance will be paid in the form of a $652 million, one-year secured loan from Siemens. Nokia declined to comment, said Reuters.

Stephen Elop, Nokia CEO, noted NSN continues to deliver well against its focused strategy. "We're very proud of the work the NSN team has done to improve its operational and financial performance. Through focus, we have been able to establish a clear leadership position in LTE, which has won the support of customers around the globe," he said.

Nokia said it will continue to consolidate NSN for financial reporting purposes and continues to focus on strengthening NSN to become an independent entity.

North America continues to gain importance at NSN, with year-over-year sales growing 16 percent in the region. NSN had declining year-over-year sales in all other world regions. Asia-Pacific and greater China both saw sales declines of 24 percent, while European sales fell by 22 percent. On a quarter-over-quarter basis, North American sales slid 18 percent and Asia Pacific sales fell 10 percent, while sales in greater China expanded by 17 percent. Europe, the Middle East and Africa, and Latin America also saw quarter-over-quarter sales growth.

In 2013's second quarter, global services remained level, representing some 52 percent of NSN's net sales. Mobile broadband represented about 46 percent of NSN's net sales, compared to 43 percent in the second quarter 2012 and 44 percent in the first quarter 2013.

NSN increased its target for a reduction in annualized operating expenses and production overheads, excluding specific items, to more than $1.96 billion by the end of 2013, compared to the end of 2011. The previous target was to reduce NSN's non-IFRS annualized operating expenses and production overheads by more than $1.31 billion by the end of 2013, compared to the end of 2011.

At the end of the second quarter 2013, NSN had 50,500 employees, a reduction of 12,900 compared to the end of the second quarter 2012, and 6,200 compared to the end of 2013's first quarter.

For more:
- see this Nokia release
- see this Bloomberg article
- see this Reuters article

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