Nokia speeds up cost-cutting after "disappointing" Q1 sales

Nokia has reported a growth in operating profit for Q1 2016 despite a drop in sales and revenue for the quarter, and will be accelerating its cost-cutting plans following the Alcatel-Lucent acquisition.

Year-on-year net sales for the vendor were down 9%, including an 8% drop specifically in its Networking business. Nokia cited greater than usual season decline in wireless market conditions as the cause for its Networks troubles, in which it saw a 12% decline in Ultra Broadband Networks sales, while its IP biz grew sales by 1% year on year. Nokia Technologies saw a marked drop off in sales, dropping 27% year on year.

Nokia, however, will point to its previous outlook in Q4 2015 as mitigation for a disappointing quarter, where it forecasted increased market difficulties for mobile.

“While our decline was disappointing, the shortfall was largely driven by Mobile Networks, where the challenging environment is not a surprise,” said CEO Rajeev Suri. “We noted in our Q4 2015 earnings release that we expected some market headwinds in 2016 in the wireless sector and we continue to hold that view today.”

Overall, however, Nokia posted operating profit growth of 25% YoY to €345 million for the quarter. On numerous occasions Nokia reiterated the ongoing cost-cutting process it recently announced, in which roughly 3,100 jobs would be cut. It cited efficiency gains to explain a 39% growth in operating profit for its Ultra Broadband Networks business despite a 12% revenue decline.

Discussing the announcement, CEO Suri said the company will be targeting new areas to expedite its cost-cutting plans and minimise redundant services and departments. Amid the changes, multiple sites have been closed and staff numbers in the US have been reduced already

“While integrations of the scale of Alcatel-Lucent are complex and take time, we are now sufficiently confident in our progress that we are targeting synergies that are both more than and faster than our original plan,” he said. “We already have agreed transition plans that cover the most pressing areas of portfolio overlap with most of our top customers; have begun the process of reducing over-lapping personnel including initial reductions in the United States and several other countries; started to consolidate our real estate footprint with several sites already closed and thirty more scheduled for the current quarter; and completed 40 projects with suppliers to drive procurement savings, with 200 more projects currently underway and plans for hundreds of additional projects to be launched largely over the course of Q2 2016.”

Amid the extensive savings exercise there appeared to be previously unannounced plans for reducing the workforce in the US. When confirming its plans to reduce headcount last month, Nokia told Telecoms.com the planned maximum number of job reductions would be 1,300 in Finland, 1,400 in Germany and 400 in France. Judging by this and Suri’s comments, Nokia’s plans for savings have expanded and will probably continue to do so while it seeks to combat a difficult first quarter as well as its integration of ALU.