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Nokia's Suri Goes on the Defensive

For a historic earnings call -- the last before Nokia starts including Alcatel-Lucent's figures in its reports -- it was a curiously downbeat affair.

After last year's bullish talk about being a more "complete player" than Ericsson AB (Nasdaq: ERIC) following the €15.6 billion ($17.7 billion) takeover of its French rival, Nokia Corp. (NYSE: NOK) was in a largely defensive mode during its update on fourth-quarter results. (See AlcaLu Deal Makes Us 'More Complete' Than Ericsson, Says Nokia CTO.)

Dodging a number of questions from analysts about margin and growth expectations for the combined entity this year, CEO Rajeev Suri and CFO Timo Ihamuotila warned of a spending slowdown in China and a gloomy outlook for the radio business.

"We are not blind to the market and macroeconomic challenges ahead of us and will tackle these head on and in a much better starting position than we would have had as two separate companies," Suri told analysts.

That hardly sounds like a ringing endorsement of the tie-up. Nokia's share price closed 2% down in Helsinki on Thursday and has fallen by nearly 25% in the last three months, about twice as much as Ericsson's has dropped in Stockholm.

Moreover, today's decline would probably have been much steeper were it not for sterling work on efficiency measures within both the Nokia and Alcatel-Lucent organizations. (See Nokia, AlcaLu Steady Ship on Costs Before Tie-Up.)

But the question so many analysts want answering is whether margins are going to hold up as two become one. Nokia says the takeover activity means it is not "appropriate" to issue detailed guidance at this stage, and that forecasts will not be forthcoming until it publishes results for the first three months of 2016.

By then, industry observers may themselves have a better idea of how things are shaping up.

On the sales front, the big hope will be that Nokia can show signs of continued growth in the markets for IP and optical equipment, video gateways, applications and analytics following its takeover of Alcatel-Lucent.

Suri expects improvements in all those areas to offset a decline in the mobile radio business in 2016, explaining Nokia's "flattish" outlook for the year.

Yet these also happen to be growth targets for Ericsson, whose partnership with Cisco could make a huge difference in the IP area. Following news it is acquiring BTI Systems Inc. , Juniper Networks Inc. (NYSE: JNPR) could also become a much stronger optical threat, although it obviously lacks the scale of Nokia and Ericsson. Then there is China's Huawei Technologies Co. Ltd. , which seems determined to make a big push into the video networks business, in particular, in 2016. (See Cisco + Ericsson: From Soup to Nuts and Juniper Buying BTI: Is That Enough?)


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


On an encouraging note, Nokia says it is making good progress on portfolio integration and "rationalization" and that it will "present one face to the world" at the forthcoming Mobile World Congress in Barcelona.

That will mean addressing concerns about the overlap between some of its radio products and those of Alcatel-Lucent, but Suri claims that Nokia is ready to begin trials of new interoperable gear.

"We have an overlap in the radio business with seven accounts, and we have been working on an interface that would allow our equipment to talk to the Alcatel-Lucent equipment," he said on the earnings call. "We are working on specific migration plans for these seven overlapping customers, and our dialogue so far has been pretty good."

Yet the first three months of 2016 are going to be quite messy, Nokia has acknowledged, informing analysts in its earnings report that it will experience a "greater than normal seasonal decline" in the quarter.

That means revenues are likely to fall by more than 23%, compared with the final quarter of 2015.

Last year, Suri was at pains to insist that a takeover of Alcatel-Lucent would not repeat the mistakes of previous mega-mergers in the global equipment market. Ensuring Nokia executives take the top C-level jobs while retaining the brightest minds in Alcatel-Lucent was a good first move. But the proof will ultimately be found on the bottom line. (See AlcaLu Execs Lose Out as Nokia Unveils New Top Team.)

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

[email protected] 2/12/2016 | 8:31:28 AM
IP division is key Real differentiation can come from the IP team that Nokia has acquired with AlcaLu. THose folks are driven and have been for the past 14 years since, ALcatel acquired TiMetra.

In Suri can harness Basil Alwan's team and combine its R&D prowess with the advances in telco cloud, network and application security, and distributed access (small cells and integrated edge aggregation) then market share could come its way.
RobertMiller66 2/12/2016 | 5:34:15 AM
Making others dependent Yeah, Nokia has really nailed it. They have already made a number of companies highly dependent upon their products and they will continue to do so.
danielcawrey 2/11/2016 | 8:39:32 PM
Infrastructure Facinating to see just what Nokia has become. They were once one of the biggest consumer electronics players in the world. Now the are focused on systems, using that familiar brand to sell things that complex systems need. It's going to be a slow year for them, but they have products that many systems really need. 
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