Optical/IP Networks

Networks Outperform at Nokia

Nokia Corp.'s (NYSE: NOK) previous fears over potential damage to its network division’s first-quarter 2005 operating margin were brushed aside today, with the Finnish vendor reporting impressive growth at its infrastructure business (see Nokia Grows in Q1).

“Networks profitability, at 15.4 percent, was very strong,” CEO Jorma Ollila said in a conference call today with analysts. “Our operating margin expectations, even towards the end of the quarter, were on much lower levels. In March our sales mix was positive, impacted by a high proportion of core network business, which traditionally has better than average profitability… Networks profitability substantially exceeded our expectations.”

"Exceeded our expectations" is putting it mildly. Ollila was downright downbeat at his company’s fourth-quarter 2004 results announcement in January, when he fired a warning shot for the immediate future (see Networks Shine at Nokia). “In the short term we expect downward pressure in the network division’s operating margin as the impact on sales from new geographic markets gets more pronounced,” he remarked at the time. “We have communicated the networks margin target of 14 percent in the next two to three years, but in the short term we will see slightly lower levels.”

The company’s networks business today reported a first-quarter operating margin of 15.4 percent, up 4 percent year-on-year, and a 44 percent rise in operating profit to €221 million (US$289 million). Network sales rose 6 percent year-on-year to €1.4 billion ($1.8 billion).

Nokia’s network success helped lift overall company performance. The vendor reported a 17 percent year-on-year increase in net sales, to €7.4 billion ($9.7 billion), and an 18 percent rise in net profit to €863 million ($1.1 billion).

Such results led to a 19 percent rise in first-quarter earnings per share (€0.19/$0.25), outperforming average analyst expectations of €0.15 ($0.20).

Nokia’s head man declined to divulge specific forecasts on future market developments, commenting only that “in 2005 the mobile infrastructure market is expected to grow slightly in euro terms.”

Nokia shares had risen 5.84 percent to €12.48 ($16.33) per share at press time, reflecting the business upturn.

— Justin Springham, Senior Editor, Europe, Unstrung

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