HELSINKI/FRANKFURT (Reuters) - Nokia's NOKIA.HE sales of network traffic equipment fell more than expected in the first quarter and will decline this year, the Finnish company said, as buyers hold off orders while it merges operations with recently purchased rival Alcatel Lucent.
However, it was the company’s refusal to detail how it planned to shore up falling profits in the longer run that led Nokia shares to fall sharply in late afternoon trading, closing down 7.2 percent at 4.65 euros in Helsinki.
For the full year, Nokia forecast falling network sales and an operating margin of more than 7 percent, compared with 6.5 percent in the first quarter and analysts’ average estimate of 9.4 percent. Analysts expect the margin to rise to 11.6 percent by 2018, once cost cuts from the merger have been completed.
Chief Financial Officer Timo Ihamuotila told investors on a conference call that the 7 percent target should be seen as a “floor” on which Nokia could improve during 2016. But he warned analysts not to use the figure to project future earnings.
The Nokia executive said forecasting was difficult just four months into its merger with Alcatel Lucent: “We don’t have quite the visibility I would like to have,” he said.
Nordea analyst Sami Sarkamies said the company had given analysts precious little to work with in terms of forecasting when stronger profits might return. “The margin estimates will be revised down clearly for this and next year,” he said.
WEAK MARKETS, MERGER DISTRACTIONS
Nokia bought Franco-American Alcatel for 15.6 billion euros ($17.8 billion) earlier this year to help it more broadly compete with Sweden's Ericsson ERICb.ST and China's Huawei [HWT.UL] in both fixed-line and mobile network equipment.
First-quarter network sales in total dropped 8 percent from a year ago to 5.18 billion euros, missing analysts’ average forecast of 5.51 billion in a Reuters poll.
Sales fell 17 percent in North America, the company’s largest market. They were down 11 percent in the Middle East, 6 percent in Asia-Pacific and 5 percent in China, but up 6 percent in Latin America.
“Some of our customers could be holding back a bit while waiting for deliveries from our new combined roadmap,” Chief Financial Officer Timo Ihamuotila told reporters in a conference call, as the company shrinks two product portfolios into one.
“However, we have no reason to believe we have lost footprint with any of our major customers,” he said.
Nokia nudged up its cost-cutting target for the merger, seeking savings of “above” 900 million euros in the course of 2018, compared with “approximately” 900 million euros before.
The company started the cuts last month, saying it would axe thousands of jobs worldwide, including 1,400 in Germany and 1,300 in Finland.
“The decline in (Nokia’s) wireless networks was surprisingly fierce ... The market remains difficult, which seems to add pressure to step up their cost-savings program,” said Mikael Rautanen, analyst at Inderes Equity Research, who has an “increase” rating on the stock.
The stock has fallen recently along with that of mobile networks market leader Ericsson, which last month posted its sixth consecutive quarter of declining sales.
(This story corrects in fourth para to say “target” instead of “growth” when referring to 7 percent operating margin)
Additional reporting by Tuomas Forsell; Editing by Mark Potter and Alexandra Hudson
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