Nokia released preliminary fourth-quarter results that were slightly above analysts previous expectations. However, the results are not indicating a blowout quarter, nor will these results signal massive Windows Lumia growth in the near term.
Device and services revenue was EUR 3.9 billion, EUR 2.5 billion of which came from the sale of 79.6 million basic and feature phones. Smart device revenue of EUR 1.2 billion was relatively in line with expectations, albeit with a different mix. On the bright side, Windows Phones represented 4.4 million smartphone units sold, a little better than expected, while legacy Symbian phone sales were 2.2 million units and represent a sharper wind-down of this business.
Another encouraging sign is that Nokia believes supply constraints for its Lumia phones may have caused the firm to leave some high-end Windows Phone sales on the table this quarter, thus pointing to decent demand in 2013. Device and service operating margins (excluding charges) will come in at 0%-2%, well ahead of the firm’s prior outlook of negative 6%. In addition to basic and feature phone sales, where Nokia still captures healthy profitability, the firm’s smart devices, in particular, sold at a relatively decent gross margin compared with prior quarters.
Nokia Siemens also performed better than expected, with revenue of EUR 4.0 billion along with operating margins (excluding charges) of 13%-15%, ahead of the firm’s outlook of 8%. Nokia Siemens had a few tailwinds this quarter, such as a more favorable product mix, improved cost-cutting measures, and an extra boost of EUR 30 million of IP royalty income.
For the first quarter, the company expects its devices and services division to earn a 2% operating loss, plus or minus 4%, due to a seasonal decline in handset demand and an overall shaky macroeconomic environment. Although first-quarter sales typically lag because of seasonality, we would anticipate that, if the Windows Lumia launch were especially strong, Nokia’s results would probably overcome these seasonal headwinds.
While analysts were encouraged by Nokia’s recent deal with China Mobile CHL to carry Lumia phones, it should be noted that AT&T T is already discounting these devices by $100 in its stores in the United States. Nokia’s fortunes are likely to be more closely tied to Europe and emerging markets like China and India, but the possibility remains that Lumia orders may face further headwinds if carriers around the globe are unable to sell the devices they already have on hand. Meanwhile, the firm expects Nokia Siemens to earn a 3% operating margin.
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