Nokia's Mixed Blessings

Nokia Corp. (NYSE: NOK)'s long-suffering network division reported both a silver lining and a cloud with its third-quarter results today. It did post a small pro forma operating profit, but this was offset by a huge fall in sales (see Nokia Suffers Q3 Fall).

The Finnish vendor’s infrastructure business at last showed signs of benefiting from earlier rounds of internal restructuring (see More Finns Finished), surprising the market with a pro forma operating profit of €19 million ($22.1 million) and a positive pro forma operating margin of 1.6 percent.

“I am very pleased that Nokia Networks was able to deliver a slight profit in the third quarter, demonstrating the success of the restructuring methods taken in the first half of this year,” CEO Jorma Ollila told analysts in a conference call.

Such success is tempered, however, by the news that sales in Nokia Networks were down by 21 percent year-on-year, to €1.2 billion ($1.4 billion). Although sales increased slightly in the Americas, the company suffered from a fall in demand in Europe and Asia Pacific.

Despite the large drop, Ollila is convinced that the downturn in the market could soon be over. “During Q3 we began to see evidence of the infrastructure market stabilizing. The case for 3G has been proven, and operator rollout schedules have been reconfirmed and even rolled forward in some cases. Although I do not see any rapid recovery... there are several factors which make us feel better about the infrastructure market than was the case a couple of quarters ago.”

Ollila states that “operator financials and balance sheets have improved significantly,” while new 3G handsets have hit the market. “There is still a lot of work to be done, particularly in the area of roaming and interoperability, but the fundamental questions around the future viability of 3G seem to have been allayed.”

Looking ahead, the company’s network division expects to break even in Q4 with sales of €1.4 billion ($1.6 billion). In light of today’s results, financial analysts are surprised by the possible lack of profitability. “We had forecast a 4 percent profit,” writes Stuart Jeffrey of Lehman Brothers. “Breakeven in Q4 is disappointing given the revenue ramp and may be driven by higher volumes of low-margin W-CDMA products.”

Overall, Nokia today posted Q3 pro-forma earnings per share of €0.18 ($0.21) on the back of €6.9 billion ($8 billion) in sales, a 5 percent fall year-on-year.

Nokia shares have fallen as a result of today’s figures, down 3.10 percent to €14.23 ($16.56) per share at press time.

— Justin Springham, Senior Editor, Europe, Unstrung

Be the first to post a comment regarding this story.
Sign In