After letting go of its mobile handset division in favor of focusing on its network equipment business, Finland’s Nokia (HEL:NOK1V) has reported a strong Q3 2014 profit growth, exceeding expectations.
Earlier this year, Nokia off-loaded its mobile devices division, which makes the Lumia line of smartphones, to Microsoft. The Helsinki-based company now runs three core businesses: Nokia Networks, which provides communications equipment to telcos; HERE, which licenses mapping and GIS data; and Nokia Technologies, which manages its patent portfolio. The company has reported growth and profitability in all three businesses.
Nokia Networks saw a 13% growth year-on-year, profiting EUR 397 million from network equipment sales, up from EUR 217 million in the previous year. Strong sales were attributed to new major LTE network deployments in North America and China. Even with lower-margin deals from its Chinese contracts, Nokia saw its core operating profit margin grow to 13.5%, up from 11% the previous quarter and 8.4% the previous year.
HERE, which supplies mapping and GIS information to the mobile and automotive industry, saw a 12% year-on-year growth to EUR 236 million in Q3 2014 from EUR 211 million the previous year. The mapping software’s customer base also grew, from gaining 2.6 million vehicles in Q3 2013 to gaining 3.2 million new licensees this quarter.
Nokia Technologies also experienced a 9% growth in profits, with EUR 152 million in Q3 2014, compared with EUR 140 million in the same quarter the previous year. Nokia attributes this to Microsoft being a more significant IP licensee, particularly as the Redmond, WA company now manages the Lumia brand.
For this quarter, non-IFRS EPS is at EUR 0.09, up 50% from the previous year’s figures (EUR 0.06). Total underlying profit for the period is EUR457 million, up 32% the previous quarter. This figure has exceeded the expected analyst estimates of EUR 359 million.
The company maintains a solid cash position with gross cash of EUR 7.6 billion and net at EUR 5.0 billion. While this has fallen from the previous quarter’s EUR 9.0 billion and EUR 6.5 billion, respectively, the decline is attributed to payments of ordinary and special dividends, share buyback and acquisitions done during the previous period.
Year-to-date, Nokia’s diluted EPS is at EUR 0.21, a marked improvement from the EUR 0.00 dilted EPS during the same period the previous year.
Benefiting from LTE
“Nokia’s third quarter results demonstrate our strong position in a world where technology is undergoing significant change,” said Rajeev Suri, President and CEO, Nokia, in a statement. “We saw growth in all three of our businesses; non-IFRS earnings per share was up 50%; and we moved forward with our capital structure optimization program, returning cash to shareholders.”
Nokia’s network equipment business gained significantly from the LTE network roll-out of major telecom companies around the globe, including Sprint (NYSE:S) in the USA and China Mobile (NYSE:CHL). Nokia’s growth in this particular sector is indicative that the telecom equipment business is a rising one, especially amid the global trend of 4G network roll-out among carriers.