Nokia beats market expectations, sees network market improving

HELSINKI (Reuters) - Finnish network equipment maker Nokia reported its quarterly profits fell less than expected, helped by cost cuts and the acquisition of Alcatel-Lucent, and said the tough global market was starting to stabilize.

Headquarters of Finnish telecommunication network company Nokia are pictured in Espoo, Finland August 4, 2016. Lehtikuva/Irene Stachon/via REUTERS

Nokia and its rivals, Sweden’s Ericsson and China’s Huawei [HWT.UL], have struggled lately as telecom operators’ demand for faster 4G mobile broadband equipment has peaked, and upgrades to next-generation 5G equipment are still years away.

Nokia bought Franco-American Alcatel-Lucent last year to broaden its operations and is currently axing thousands of jobs as it seeks to cut 1.2 billion euros ($1.3 billion) of annual costs by 2018.

Nokia said that while it expected the global networks market to fall around 2 percent this year, it saw opportunities in markets such as North America, India and Japan.

“We continue to expect our performance to improve in 2017 and see the potential for margin expansion in 2017 and beyond, as market conditions improve and our sales transformation programs gain further traction,” Chief Executive Rajeev Suri told reporters on a conference call.

“Our plan is to make the most of the market this year, be efficient, maintain our pricing discipline, ensure our synergies happen and we get the cost reductions.”


Shares in the company - which are down 24 percent from a year ago - rose 3.5 percent by 0905 GMT (04:05 a.m. ET).

“Nokia, Ericsson and also Huawei are focusing more on profitability than growth. Although the market will decline this year, price pressure will ease,” said Inderes analyst Mikael Rautanen with an “accumulate” rating on the stock.

Nokia’s fourth-quarter group earnings before interest and taxes (EBIT) fell 27 percent from a year ago to 940 million euros ($1 billion), but were well above analysts’ average forecast of 788 million euros in a Reuters poll.

The networks unit’s sales in the quarter fell 14 percent, more than expected, but its operating margin came in at 14.1 percent, ahead of a market forecast of 11.7 percent.

In full-year 2016, the networks margin was 8.9 percent, and for this year Nokia expects a margin of between 8 to 10 percent.

“Topline was a little soft, but it was offset by good profitability... which seems to stem from efficiencies and everything that Nokia has done,” said OP Equities analyst Hannu Rauhala, with a “buy” rating. “Worries about Nokia’s profitability are easing a little.”

Once the world’s biggest mobile phone maker, Nokia was caught out by the rise of smartphones and ended up selling its handset business to Microsoft in 2014, leaving it with the networks business and a portfolio of technology patents.

In December, Nokia filed a string of lawsuits against Apple for violating its patents, and the legal battle is expected to delay further returns from Nokia’s potentially highly lucrative patent royalty portfolio.

Last month, Nokia’s name returned to the smartphone market as HMD Global - a new company ran by former Nokia executives - launched new Nokia handsets under a licensing deal.

($1 = 0.9264 euros)

Additional reporting by Eric Auchard; Editing by Stephen Coates/Keith Weir