VoIP Systems

NSN Hunkers Down

Behind the furor that greeted Nokia Corp. (NYSE: NOK)'s mobile handset outlook for 2008, and the resulting 10 percent hit to the Finnish vendor's share price, Nokia Networks reported first quarter numbers that show it's still a business coming to terms with its size and shape. (See Nokia: High-End Hurt.)

Having ended 2007 with an encouraging fourth quarter, when it reached operating break even, Nokia Siemens Networks (NSN) came down to earth in the first three months of 2008. (See Nokia Siemens Ramps in Q4.)

It reported revenues of €3.4 billion ($5.37 billion) -- down 26 percent from the previous quarter -- gross margins of 28.2 percent, and an operating loss of €74 million ($117 million), or -2.2 percent. A fall in sales was expected as seasonality trends kick in.

Trying to look on the bright side, the vendor noted that before one-time costs, including items associated with the formation of NSN, operating margin was 2.4 percent.

And Nokia's senior team was quick to jump to NSN's defense –- something they haven't always been so keen to do. (See Nokia Siemens Suffers Merger Blues and Instant Revamp for Nokia Siemens.)

Nokia's CEO, Olli-Pekka Kallasvuo, noted on the vendor's earnings conference call: "Progress has been difficult but steady in the first 12 months of operations. The first quarter saw effective cost control and good progress in key markets and product segments including a stronger than expected performance in China, especially in the services sector. NSN has been running its business well in an extremely challenging market."

And he admitted that no one had foreseen how tough NSN's first year was going to be. "The overall market in the past year has been extremely competitive. More action [in terms of cost cutting] was needed than was seen 18 months ago."

And Kallasvuo responded to analyst comments that NSN's first quarter performance was below par by saying: "You might say the first quarter was disappointing, but I would say it's encouraging."

Companies are often judged by how they perform compared with a year earlier, a comparison NSN hasn't been able to make so far as it only opened its doors fro business on April 1, 2007.

From the second quarter of 2008, though, such a comparison will become available, and Kallasvuo, along with NSN's management, will be hoping to report figures that back up the Nokia CEO's optimism.

— Ray Le Maistre, International News Editor, Light Reading

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