No Sign of Recovery for Nokia Siemens

If the telecom equipment sector is in the early stages of a recovery, there's no sign of it yet at Nokia Networks .

After a carrier capex squeeze during the first half of 2009, there had been hopes in the market, fueled by announcements from the likes of AT&T Inc. (NYSE: T) that annual spending targets are being maintained, that vendors would benefit from an upturn in operator spending during the second half of the year. (See Ciena Offers Hope.)

But if more money's being spent, it's not on NSN gear. The systems vendor and managed services provider today announced third-quarter revenues of €2.76 billion (US$4.1 billion), down more than 21 percent compared with a year ago. And it announced an operating loss of €1.1 billion ($1.64 billion), compared with a tiny loss of just €1 million ($1.49 million) a year earlier. Gross margin dipped to 28.2 percent from 30.8 percent a year ago. (See Nokia Reports Q3.)

The big third-quarter loss was caused by non-cash goodwill impairment charges of €908 million ($1.35 billion) and other one-time charges. Without those one-time charges, NSN would have reported a third-quarter operating loss of €53 million ($78.8 million).

"The asset impairment charges are the result of an evaluation of the historical and projected financial performance of Nokia Siemens Networks, taking into consideration the challenging competitive factors and market conditions in the infrastructure and related services business, which have resulted in lower net sales projections and which, in turn, have reduced the projected scale and thus negatively impacted projected margins and profitability," stated NSN parent Nokia Corp. (NYSE: NOK), which saw its share price fall 7.5 percent to €9.53 on the Helsinki exchange.

Nokia says it now "no longer carries any goodwill with regard to Nokia Siemens Networks."

The company also announced that it now expects the "mobile infrastructure and fixed infrastructure and related services market" to shrink by about 5 percent in 2009 from 2008 levels. Previously, the company had been expecting a 10 percent decline in the value of the market.

However, NSN now expects its market share to "decline by more than previously expected in 2009, compared with 2008." NSN isn't being more specific, though, saying only that previously it had expected a "moderate decline."

During the company's earnings conference call Thursday, Nokia CEO Olli-Pekka Kallasvuo noted that "it's clear NSN has lost market share. The top priority now is restoring the top line... and reversing the market share dynamic. We continue to support Nokia Siemens Networks actions to improve its performance."

He added that NSN continues to make progress in the critical mobile infrastructure market, where it added 11 new 3G customers during the quarter to take its total to 160 global 3G references, while LTE-ready infrastructure has been shipped to more than 100 customers. (See NSN Wins T-Mobile Austria Deal, NSN Goes to Greenland, MegaFon Picks NSN 3G Gear, NSN Upgrades Czech T-Mobile, and Vietnam Uses NSN for 3G.)

The company added that it continues to "see strong performance in its Services business unit," but that this will be "offset by declines in certain product businesses."

Nokia CFO Rick Simonson noted that the professional services market is key to revenue growth, and that NSN is "well positioned," and continues to see a strong pipeline for further services business.

In the third quarter, Services accounted for €1.3 billion ($1.93 billion) of revenues, 47.1 percent of the total, a slight increase from the previous quarter. (See Slump Slams Nokia Siemens and Services Now 45% of NSN Revenues.)

Nokia Siemens Networks, which has nearly 64,000 staff, recently appointed its former head of the Services division, Rajeev Suri, as its new CEO. (See Nokia Siemens Replaces Its CEO.)

Overall, Nokia Corp. reported revenues of €9.8 billion ($14.57 billion), down 20 percent year-on-year. However, the Finnish giant noted that demand for mobile devices improved in many regions during the third quarter, and were better than expected. CEO Kallasvuo said the fourth quarter is shaping up to be the best of the year in terms of sales and margins across the company, and that there is "relative stability in the economic environment" and "signs of recovery."

— Ray Le Maistre, International News Editor, Light Reading