Nokia Loss Blamed on Telco Spending Cuts, Alcatel acquisition
Nokia cited a wireless spending slowdown and the integration of its new Alcatel-Lucent unit in reporting an unexpected loss in its latest quarter after a profit in the year-earlier period. But higher sales at Alcatel’s fixed-line division offset some of the declines. Revenue at Alcatel’s mobile networks business declined 28%, which Nokia blamed on customers’ delayed buying decisions related to the transition.
Nokia agreed to buy Alcatel-Lucent for about $18 billion last year to seek savings and expand its product range beyond mobile infrastructure as demand from phone carriers wanes. The first-quarter numbers show the short-term costs of such a big transaction are quickly materializing, while the long-term benefits are yet to be proven.
“This was another mixed publication and will be difficult to interpret for investors,” analysts at Oddo Securities said in a note to clients.
Nokia Chief Executive Officer Rajeev Suri is betting on the deal to tap into newer products such as Internet-protocol networks, while boosting Nokia’s software offering and research and development capabilities to fend off rivals Ericsson AB and Huawei Technologies Co.
Suri 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.
“Sales were a bit weak, but Nokia showed stronger profitability mostly because of Alcatel-Lucent’s contributions from its fixed-line and IP and applications businesses,” said Mattias Lundberg, an analyst at Swedbank AB in Stockholm.
Revenue was hurt by a 28 percent drop at Alcatel-Lucent’s mobile-networks business, as customers considered how to align their infrastructure to Nokia’s product road map, Ihamuotila said on a conference call.
“It’s understandable that some customers who have been mobile customers on the Alcatel-Lucent side would think of ‘how do I get to the combined road map as quickly as possible’ and that could impact slightly the short-term performance,” he said, adding Nokia isn’t losing market share with those customers.
Sales in North America, Nokia’s biggest region, slumped 17 percent to 1.58 billion euros, while revenue from China slipped 5 percent to 572 million euros. Nokia’s overall network sales declined 12 percent to 3.73 billion euros.
The merger is also aimed at reducing costs. Nokia is said to eliminate about 10,000 to 15,000 positions from the combined staff of 104,000, seeking savings by reducing overlapping products, services and sales positions. Savings from the merger are set to surpass the company’s previous estimate and top 900 million euros in 2018, Nokia said.
Phone carriers are curbing investments after spending billions of dollars in the past years to build speedier fourth-generation networks so smartphones can stream video and audio more quickly. With much of the 4G networks already built in key markets such as the U.S. and China, carriers’ investments are set to slump by 7 percent this year and a further 5 percent in 2017, according to Deutsche Bank AG.
This decade long telecom slump is a far cry from the boom years in the 1990s. It’s truly mind boggling.