& cplSiteName &

Nokia Turnaround Gathers Pace, Shares Rise

Iain Morris

Nokia's turnaround has picked up momentum in the first three months of the year, with the Finnish vendor reporting a much slower sales decline than in previous quarters and highlighting encouraging progress at its mobile and fledgling software businesses.

The company's net sales shrank by 4% on a "non-IFRS" basis, to about €5.4 billion ($5.9 billion), and by 6% in constant-currency terms, compared with the year-earlier period. That compares with a decline of about 10% last year and one of 13% in the final quarter of 2016. (See Nokia Upbeat on Turnaround Despite Sales Decline.)

Along with Sweden's Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK) has been struggling in the face of a declining market for network equipment and aggressive competition from Asian rivals: China's Huawei Technologies Co. Ltd. has continued to grow sales while its Western rivals suffer. (See Huawei's Sales Soar but Profit Growth Grinds to a Halt.)

Cautiously Optimistic
Rajeev Suri, Nokia's CEO, is making encouraging progress on knocking the Finnish vendor into shape.
Rajeev Suri, Nokia's CEO, is making encouraging progress on knocking the Finnish vendor into shape.

Nokia last year completed a €15.6 billion ($17 billion, at today's exchange rate) takeover of France's Alcatel-Lucent, giving it important capabilities in the fixed and core network markets, and is now looking to new enterprise and software markets for sales growth. (See Nokia's New Software Unit to 'Redesign' Company and Nokia to Create Standalone Software Biz, Target New Verticals.)

While Nokia had little to say about that strategy in its first-quarter report, it results were characterized by improvements in profitability as well as sales.

Non-IFRS numbers, which strip out some of the costs related to the Alcatel-Lucent (NYSE: ALU) acquisition and are intended to provide a better comparison, show that Nokia's operating margin rose to 6.3%, from 6.1% a year earlier, while net profit was up 46%, to €203 million ($222 million).

On a reported basis, the operating margin improved from -12.9% to -2.4% over that period, with the net loss narrowing from €623 million ($680 million) to €473 million ($516 million).

Investors applauded the performance, with Nokia's share price up more than 6% during early-morning trading in Finland.

The results stood in marked contrast to those of Ericsson, which earlier this week said that first-quarter revenues were 11% lower than in the year-earlier period and complained about the continued weakness in the mobile broadband market. (See Ericsson's Q1 Even Worse Than Feared.)

But mobile broadband was a relative bright spot for Nokia, which said its revenues in this market had stabilized in the first quarter thanks, in particular, to sales of 4.5G products, which are now used by 145 customers, up from 110 in December. (See Nokia Boasts 4.5G Momentum With 110 Deals.)

CEO Rajeev Suri also drew attention to "flat" sales at the critical applications and analytics business following a 13% decline in the fourth quarter of 2016.

While applications and analytics currently accounts for less than 7% of overall revenues, it is from this division that Nokia wants to create a significant "standalone" software business in future.

The improvements also suggest there has been a positive response to recent product initiatives including the launch of a new Internet of Things platform it calls IMPACT. (See Nokia Aims for Big IMPACT in Enterprise IoT.)

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

But it was not entirely good news in the first quarter, with Suri indicating that "some challenges remain" in a statement that struck a measured tone and urged cautious optimism about the year ahead.

While the mobile networks business was the star of the show, with revenues down just 1%, to €3.1 billion ($3.4 billion), sales of fixed-line products were a big disappointment, tumbling by nearly a fifth to just €501 million ($547 million).

Suri said the unit had been "impacted by several large deployments coming to an end."

The IP and optical networks business also registered a sales decline of 14%, to €945 million ($1 billion), after seeing a decline of 12% in the fourth quarter.

In this area, in particular, Nokia is attempting to drum up interest outside its traditional telecom market, catering to large Internet companies and organizations in other "adjacent" vertical sectors. It has also hinted at the launch of new products that will be aimed at the Internet companies in the months ahead.

Despite those pressure points, Nokia was able to confirm its previous guidance for 2017: It expects network sales, which account for more than 90% of the total, to shrink by about 2.2% -- the same rate of decline it is forecasting for its main addressable market -- and is guiding for an operating margin at the networks business of between 8% and 10%. (See Nokia Forecasts Sales Decline in 2017, Shares Fall.)

Excluding the small Nokia Technologies business, Nokia also expects to generate €1.2 billion ($1.3 billion) in cost savings next year, compared with non-IFRS operating costs at the combined Nokia and Alcatel-Lucent businesses in 2015.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

(2)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
User Rank: Light Sabre
4/30/2017 | 8:27:52 PM
Re: Awesome discussion I like
It's good they are experiencing gains right now. I'm not convinced they'll be able to do it in the US. Other markets may fair better. 
User Rank: Blogger
4/27/2017 | 8:47:50 AM
The flat (white) OSS/BSS economy
Flat sales is the new growth in OSS/BSS. Ericsson, which has rejigged its reporting structure once again (now lumping OSS/BSS n with Cloud, NFV/SDN, Telecom core, and IP routing) posted March quarter IT & Cloud revenue down 3% year on year (down 7% at constant currency) with 7% growth in services offset by a 14% decline in products. This compares with a 7% revenue decline for the division in 2016 with services revenue up 1% and products down 16%.

In comparison, Nokia's Applications & Analytics unit posted flat sales in the March quarter, a marked improvement from the 13% decline in 2016. Nokia said the unit showed "significant, even if early, signs of improvement" with robust new orders, particularly in BSS driven by demand for new charging models. However, Nokia notes Applications & Analytics' profitability has room for improvement.
Featured Video
From The Founder
Light Reading is spending much of this year digging into the details of how automation technology will impact the comms market, but let's take a moment to also look at how automation is set to overturn the current world order by the middle of the century.
Flash Poll
Upcoming Live Events
November 30, 2017, The Westin Times Square
March 20-22, 2018, Denver Marriott Tech Center
May 14-17, 2018, Austin Convention Center
All Upcoming Live Events
SmartNICs aren't just about achieving scale. They also have a major impact in reducing CAPEX and OPEX requirements.
Hot Topics
Nokia Bell Labs & Verizon Stretch Fixed 5G to the Home
Dan Jones, Mobile Editor, 11/13/2017
Juniper's New Contrail VP Hails From Google
Craig Matsumoto, Editor-in-Chief, Light Reading, 11/15/2017
Eurobites: Telefσnica Reckons Plastic Is Fantastic for FTTH
Paul Rainford, Assistant Editor, Europe, 11/15/2017
Animals with Phones
Why Cats Don't Run Tech Support Click Here
Live Digital Audio

Understanding the full experience of women in technology requires starting at the collegiate level (or sooner) and studying the technologies women are involved with, company cultures they're part of and personal experiences of individuals.

During this WiC radio show, we will talk with Nicole Engelbert, the director of Research & Analysis for Ovum Technology and a 23-year telecom industry veteran, about her experiences and perspectives on women in tech. Engelbert covers infrastructure, applications and industries for Ovum, but she is also involved in the research firm's higher education team and has helped colleges and universities globally leverage technology as a strategy for improving recruitment, retention and graduation performance.

She will share her unique insight into the collegiate level, where women pursuing engineering and STEM-related degrees is dwindling. Engelbert will also reveal new, original Ovum research on the topics of artificial intelligence, the Internet of Things, security and augmented reality, as well as discuss what each of those technologies might mean for women in our field. As always, we'll also leave plenty of time to answer all your questions live on the air and chat board.

Like Us on Facebook
Twitter Feed
Partner Perspectives - content from our sponsors
The Mobile Broadband Road Ahead
By Kevin Taylor, for Huawei
All Partner Perspectives