Nokia (NOK) reported 1st-quarter results with a loss of €1572 Million ($2044 Million), but let's look at the numbers and see if it's still possible for Nokia to become profitable in the second quarter.
First of all, we must assume that the restructuring has already been totally discounted, which implies that the €945 Million ($1229 Million) accounted on "Other Expenses" won't repeat again in the future.
Scenario 1:
In this case, the only change is in sales, which will rise 24% to €9139 Million ($11881 Million) in order to achieve the breakeven point. Notice that this value is lower than the €9275 Million ($12058 Million) verified in the 2nd Quarter of 2011.
Nokia's campaign in the U.S. appears to show some results, Lumia 900 already sold out in some stores and is at the top of Amazon (AMZN) sales. The support of AT&T (T) might continue and may help to achieve 5 Million units per quarter.
Let's assume that for every Lumia sold, Nokia makes €200 ($260), this would bring €1000 Million ($1300 Million) increase in sales just in the U.S., which represents 330% more than their actual sales in this market.
Sales in the remaining global market just need to see an increase of €315 Million ($410 Million) for the target of €9139 Million ($11881 Million) to be achieved.
Scenario 1: Increase in Sales of 24% and net income of 0 | ||||
| Million Euros | ||||
Total Costs | -2559 | |||
R&D | -1309 | |||
Selling and Marketing | -874 | |||
Administrative | -283 | |||
other income | 37 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -130 | |||
2Q | 1Q | Variation | ||
Sales | 9139 | 7354 | 24% | |
Gross Margin | 28,00% | 28,00% | 0% | |
Gross Profit | 2559 | 2034 | 26% | |
Net income | 0 | -1572 | ||
Scenario 1: Increase in Sales of 24% and net income of 0 | ||||
| Million USD | ||||
-3326 | ||||
R&D | -1702 | |||
Selling and Marketing | -1136 | |||
Administrative | -367 | |||
other income | 48 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -169 | |||
2Q | 1Q | Variation | ||
Sales | 11881 | 9560 | 24% | |
Gross Margin | 28,00% | 28,00% | 0% | |
Gross Profit | 3327 | 2644 | 26% | |
Net income | 0 | -2044 | ||
Scenario 2:
The only change in this scenario is the gross margin, reflecting an improvement to 35% due to the restructuring that has been made on the last months. In this case we'll have to go back into the 3rd Quarter of 2008 to see similar margins, but the capital spent to restructure the company should show some results in the near term future.
Scenario 2: Increase in Gross Margin of 24% and net income of 0 | ||||
| Million Euros | ||||
Total Costs | -2559 | |||
R&D | -1309 | |||
Selling and Marketing | -874 | |||
Administrative | -283 | |||
other income | 37 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -130 | |||
2Q | 1Q | Variation | ||
Sales | 7354 | 7354 | 0% | |
Gross Margin | 34,80% | 28,00% | 24% | |
Gross Profit | 2559 | 2034 | 26% | |
Net income | 0 | -1572 | ||
Scenario 2: Increase in Gross Margin of 24% and net income of 0 | ||||
| Million USD | ||||
Total Costs | -3326 | |||
R&D | -1702 | |||
Selling and Marketing | -1136 | |||
Administrative | -367 | |||
other income | 48 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -169 | |||
2Q | 1Q | Variation | ||
Sales | 9560 | 9560 | 0% | |
Gross Margin | 34,80% | 28,00% | 24% | |
Gross Profit | 3327 | 2644 | 26% | |
Net income | 0 | -2044 | ||
Scenario 3:
In this scenario we'll assume an improvement in both sales and gross margin, motivated by the reasons previously presented on the first two scenarios.
Scenario 3: Increase in Sales of 20% and Gross Margin at 25% | ||||
| Million Euros | ||||
Total Costs | -2559 | |||
R&D | -1309 | |||
Selling and Marketing | -874 | |||
Administrative | -283 | |||
other income | 37 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -130 | |||
2Q | 1Q | |||
Sales | 8825 | 7354 | 20% | |
Gross Margin | 35,00% | 28,00% | 25% | |
Gross Profit | 3089 | 2034 | 52% | |
Net income | 530 | -1572 | ||
Scenario 3: Increase in Sales of 20% and Gross Margin at 25% | ||||
| Million USD | ||||
Total Costs | -3326 | |||
R&D | -1702 | |||
Selling and Marketing | -1136 | |||
Administrative | -367 | |||
other income | 48 | |||
other expenses * | 0 | * Restructuring Costs | ||
Financial Results | -169 | |||
2Q | 1Q | |||
Sales | 11472 | 9560 | 20% | |
Gross Margin | 35,00% | 28,00% | 25% | |
Gross Profit | 4015 | 2644 | 52% | |
Net income | 689 | -2044 | ||
As you can see, these improvements are reasonable. By the way, if we assume a steady net income of €530 Million ($689 Million) per Quarter, this represents a €2119 Million ($2756 Million) a year, which at the present Market Cap of €10 927 Million ($14205 Million) means a 5.16 PER (price-to-earnings ratio).
The image bellow shows the first day Lumia 800 came to stores in China.
Disclosure: I am long NOK.
