Nokia and Alcatel-Lucent deliver better than expected Q3 2015 results

The proposed €15.6bn merger between equipment makers Nokia and Alcatel-Lucent continues apace, after Nokia reported stronger-than-expected profits and a new plan to return money to shareholders.

Meanwhile Paris-based Alcatel-Lucent’s quarterly figures show that while the vendor has widened its losses it has reported higher margins and underlying profitability, which it says will help the company’s preparation for its purchase by Nokia.

Nokia said it is on track to complete its proposed takeover in the first quarter of 2017 after securing regulatory approvals. Its target of €900 million in cost-savings has been forward by a year to 2018.

Nokia’s third-quarter operating profit at the network unit was 391 million euros, 13.6% of its sales. A Reuters poll of analysts had predicted much lower profits, with an average estimate of €297 million euros yield and a lower profit margin of 10.2% being mooted by market watchers.

Nokia also lifted its full-year profitability forecast for the networks unit. It said the operating profit margin would be around or slightly below the high end of its long-term target range of 8 to 11%, against less optimistic earlier forecasts, which mooted half of the actual margin level reported.

Alcatel-Lucent showed progress on profitability, helped by cost cuts and sales from its networking equipment making division. Its adjusted operating income rose to 212 million euros for a margin of 6.2%, up on the 5.2% reported this time last year.

Nokia said it would return excess capital following its divestments of its mobile phone making business. It promised to distribute 4 billion euros to shareholders in coming years through dividends and share buybacks. Nokia shares jumped 9% in morning trading, while Alcatel-Lucent rose 8%.

“Both companies are in excellent shape ahead of the merger,” Bernstein Research analyst Pierre Ferragu told Reuters. “Fundamentals are very strong and set to deliver meaningful upside for shareholders.”

Market analysts had urged caution over Nokia’s earnings after Ericsson’s disappointing results indicated slowing demand in China.

“China has not had a such a negative effect on Nokia as it did on Ericsson,” Pohjola Bank analyst Hannu Rauhala told Reuters. “ This could be just due to timing.”