Nokia’s third quarter down and admits ripping off Qualcomm patents

Nokia’s third quarter highlights have not made good reading, with net sales down 5% year on year and 7% sequentially, at Euro 12.2 billion. Additionally, hidden in the results for the company is a payment of Euro 1.7 billion to Qualcomm, part of the peace settlement made in July this year that will allow Nokia to continue using Qualcomm’s patents in Nokia devices.

On Qualcomm, under the terms of its 15 year agreement with the company, Nokia has been granted a license under all Qualcomm’s patents for use in Nokia’s mobile devices and Nokia Siemens Networks infrastructure equipment. As previously communicated by the businesses, the financial terms also included a lump-sum cash payment.

The payment amounts to Euro 1.7 billion and is payable by Nokia to Qualcomm during the fourth quarter 2008. The lump-sum payment made to Qualcomm will be expensed quarterly over the term of the agreement. As a result of the agreement with Qualcomm and certain other license agreements concluded during the third quarter 2008, Nokia incurred a slightly positive impact to its gross margin during the quarter, as the royalty provisions earlier recorded well covered the related obligations.

Devices and services net sales stand at Euro 8.6 billion, down 7% year on year and down 5% sequentially (down 1% and 5% at constant currency). Services and software net sales stand at Euro 115 million (billings of EUR 140 million), for the quarter.

On a more positive note, in the third quarter 2008, the total mobile device volume of Nokia’s Devices & Services group reached 117.8 million units, representing 5.5% year on year growth and a 3% sequential decrease. The overall industry mobile device volume for the same period reached 310 million units based on Nokia’s estimate, representing 8% year on year growth and a 2% sequential increase.

Of the total industry mobile device volumes, converged mobile device industry volumes in the third quarter 2008 increased to 44.2 million units, based on Nokia’s estimate, compared with an estimated 31.7 million units in the third quarter 2007. Its own converged mobile device volumes were 15.5 million units in the third quarter 2008, compared with 16.0 million units in the third quarter 2007. Nokia shipped almost nine million Nokia Nseries and three million Nokia Eseries devices during the third quarter 2008.

The Nokia estimated mobile device market share stands at 38%, down from 39% in Q3 2007 and down from 40% in Q2 2008. Average selling prices of Nokia mobile devices for the quarter are Euro 72, down from Euro 74 in Q2 2008. However, the devices and services gross margin of 36.5% is up sequentially from 36.1% in Q2 2008.

Nokia Siemens Networks net sales are 3.5 billion for the quarter, down 5% year on year and down 14% sequentially. While total cash and other liquid assets for the business are at Euro 7.2 billion at the end of Q3 2008.

Olli-Pekka Kallasvuo, CEO at Nokia, stated: “As a result of our strong operational management and market position, Nokia was able to achieve solid margins and operating cash flow of Euro 1.3 billion for the third quarter of 2008. With our scale, brand, improving product portfolio and low cost structure, we believe Nokia is well positioned for the current times.”

However, Nokia expects industry mobile device volumes in the fourth quarter 2008 to be up sequentially. It also expects its mobile device market share in the fourth quarter 2008 to be at the same level or slightly up sequentially, and industry mobile volume to be approximately 1.26 billion in 2008, up from approximately 1.14 billion units that Nokia estimated for 2007.