* Sales in rump NSN network business fall more than expected
* Company plans NSN sales drive, year-on-year growth in
* No comments on new corporate structure
* Shares fall 10 pct
By Ritsuko Ando
HELSINKI, Jan 23 Nokia has reported a
steep fall in sales at its network equipment division, raising
concerns about growth prospects for what will be its primary
operation after selling its former flagship phone business to
The Nokia Solutions and Networks (NSN) division's
fourth-quarter sales fell 22 percent from a year earlier to 3.1
billion euros ($4.2 billion) as it failed to make up for the
completion of large-scale Asian projects and withdrawal from
some low-margin businesses earlier in the year.
Meanwhile sales in the Devices and Services division which
it is selling to Microsoft for 5.4 billion euros ($7.4 billion)
fell 29 percent to around 2.6 billion euros as it struggled with
"competitive industry dynamics".
Nokia's shares were down 10 percent at 5.15 euros by 1600
GMT, a gain of more than 70 percent since the Microsft deal was
announced in September, and analysts said much of the sell-off
was due to worries about NSN, which will account for around 90
percent of Nokia's sales after the Microsoft deal is completed
later this quarter.
Analysts had on average forecast sales of 3.2 billion euros,
according to a Reuters poll.
"The fourth quarter was slightly disappointing," said
Inderes analyst Mikael Rautanen. "Minus 22 percent was a heavier
decline than was expected."
The unit turned profitable in 2012 after slashing costs and
shedding unprofitable business but analysts say management now
needs to concentrate on winning more work as high research and
development costs mean bigger players have an advantage.
"They have cut costs and made profits for several quarters,
but it's important that sales stabilise and grow in the second
half of this year." said Greger Johansson at research firm
Nokia duly said it would make an aggressive push this year
to gain market share against industry leader Ericsson
as well as Chinese rival Huawei, and is aiming for
year-on-year sales growth in the second half.
NSN's chief executive Rajeev Suri said it would be helped by
recent deals with carriers such as Sprint in the United
States and China Mobile.
"We are not satisfied with our top line results," he told
analysts on a conference call, saying the company would be more
"assertive" in winning deals.
However, analysts expect such sales growth will come at the
expense of margins. NSN's operating margin last year rose to 9.7
percent from 5.7 percent in 2012.
The margin in the first quarter was likely to fall to around
5 percent, the company said, but it expects the year result to
be at the higher end of its long-term range of 5-10 percent.
JP Morgan said it found the year forecast reassuring and
kept an "overweight" rating on Nokia's shares but Nordea
reiterated a "sell" recommendation, saying the company's
forecast of 600 million euros in patent income for 2014 was much
lower than he expected.
However, the overall results showed the group in stronger
financial health without the phone business, which reported an
adjusted operating loss of 191 million euros in the fourth
"The Microsoft deal looks only better and better for Nokia.
If they still had that business in their books, their share
price would be below two euros," said Mika Heikkila, portfolio
manager at Taaleritehdas Asset Management.
Shipments of Lumia smartphones, which run on Windows Phone
software, fell to 8.2 million devices in the last three months,
from 8.8 million in the previous quarter, showing they failed to
win over consumers in the crucial holiday season, and Nokia said
the average sales price for its phones fell.
That shows the difficulties Microsoft will face in breaking
into a market which apart from Apple is now dominated by phones
running on Google's Android operating system.
Nokia's former chief executive Stephen Elop made the
controversial decision to adopt Windows Phone in an attempt to
recover from a late start in smartphones. But a limited
marketing budget and an initial lack of popular apps made it
hard for Nokia's smartphones to catch up.
It launched a wide range of handsets last year, winning
positive reviews from critics, but by then investors were
growing increasingly concerned about the company's finances.
Completion of the Microsoft sale is expected to return Nokia
to an investment-grade credit rating while still allowing it to
return some of the cash proceeds to shareholders.
Nokia last year suspended its annual dividend for the first
time in its 148-year history in an attempt to preserve cash.
But it said on Thursday that the board was still
deliberating on the company's corporate and capital structure
and on how much of the Microsoft cash would be paid out to
"Investors are left cold here. Not a word about the new
strategy, the dividend decision is due to come later and the NSN
result was short of expectations," said Alandsbanken fund
manager Jari Honko.