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Nokia Corp. (NOK - Analyst Report), the beleaguered mobile handset developer, reported mixed financial results for the second quarter of 2013. However, the company continues to lose market share in the mobile device market despite witnessing sequential growth of its flagship Lumia series of smartphones. Nokia currently has a Zacks Rank #3 (Hold).

Quarterly net loss was approximately $364 million or 8 cents per share compared with a net loss of $1,964 million or a loss of 49 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) earnings per share of a break-even were better than the Zacks Consensus Estimate of a loss of 3 cents per share. On the other hand, quarterly net revenue was approximately $7,458 million, a stiff fall of 24.5% year over year and well below the Zacks Consensus Estimate of $8,491 million.  

Quarterly adjusted gross margin was 33.5% compared with 24.3% in the prior-year quarter. Adjusted operating margin, in the reported quarter, was 5.3% compared with a negative 4.3% in the year-ago quarter. During the second-quarter 2013, the company used $257 million of cash for operation compared with cash generation of $134 million in the year-ago quarter. Free cash flow, in the reported quarter, was a negative $444 million compared with a negative $17 million in the year-ago quarter.  

At the end of the first half of 2013, Nokia had approximately $11,868 million of cash and marketable securities compared with $11,722 million at the end of 2012. Total debt, at the end of the reported quarter, was $4,645 million compared with $7,003 million at the end of 2012. the debt-to-capitalization ration at the end of the second quarter of 2013 was 0.28 compared with 0.36 at the end of 2012. 

Devices & Services Segment

Quarterly total revenue was approximately $3,567 million, down 32.3% year over year. Within this segment, Smartdevices revenues were $1,524 million, down 24.5% year over year. Mobile Phones revenues were $1,840 million, down 38.7% year over year. Other revenues were $203 million, down 18.9% year over year. Quarterly adjusted operating loss for this segment was approximately $42 million, down 91.2% year over year. Adjusted operating margin was a negative 1.2% compared with a negative 9% in the prior-year quarter.

Smartphones average selling price (ASP) was $205.6, up 4% year over year. Mobile Phone ASP was $34, down 16% year over year. In the second quarter of 2013, Nokia shipped 7.4 million Lumia smartphones and 53.7 million Mobile Phones (including 4.3 million Asha full-touch phones), each down 27% year over year. Ever since Apple Inc.’s (AAPL - Analyst Report) iPhone hit the market, Nokia is facing distressing times. The situation further aggravated once Google Inc. launched its Android software and several handset manufacturers adopted the operating system.

Nokia Siemens Network Segment

Quarterly total revenue was approximately $3,641 million, down 16.8% year over year. Quarterly adjusted operating profit was approximately $429.5 million, surged an enormous 1,072% year over year. However, adjusted operating margin was 11.8% compared with 0.8% in the prior-year quarter. Meanwhile, Nokia reached a deal to purchase 50% stake of Siemens AG in NSN for $2.2 billion. The deal is expected to close in the third quarter of 2013, subject to customary regulatory approvals.

HERE Segment

Quarterly total revenue was approximately $305 million, down 17.7% year over year. Quarterly adjusted operating profit was $10.5 million, down 80% year over year. Adjusted operating margin was 3.4% compared with 14.5% in the year-ago quarter.

Outlook

For the third quarter of 2013, Nokia expects its Devices & Services segment’s adjusted operating margin to be approximately negative 2%, plus or minus 4%. However, unit sales of the Lumia-series of smartphones will be sequentially higher. Nokia aims to reduce its Devices & Services adjusted operating expenses to around €3 billion by the end of 2013. Adjusted operating margin for Nokia Siemens Networks will be 7% plus or minus 4%. Nokia further expects to reduce the operating expense in this segment by more than €1 billion by 2013 from the 2010 level of €5.35 billion.

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