Profits plummet at Nokia Networks

Finnish telco Nokia’s Q1 2015 earnings report revealed a dramatic decline in profits from its core networking operations. While Nokia Networks revenues were up 15% year-on-year, operating profit was down a massive 61%, with the Mobile Broadband division registering a loss of €3 million.

Nokia attributed the negative swing down to a number of factors, including lower software sales, lower systems integration profit, “strategic entry deals”, currency hits, increased investments and good old “challenging market conditions”. HERE, did OK and Nokia Technologies managed to double its profits annually, but 84% of Nokia’s revenues come from Networks.

“Nokia delivered a 20% increase in net sales and 25% increase in earnings per share in the first quarter,” said Nokia CEO Rajeev Suri. “Underlying these results was excellent performance from HERE and Nokia Technologies, while good growth at Nokia Networks was offset by unsatisfactory profitability.”

Suri also acknowledged that Nokia is “considering our options” for HERE, which could include selling it, and made sure to address the big Alcatel Lucent acquisition.

“The strategic logic of this proposed transaction is strong and we believe that it will provide long term benefits to shareholders of both Nokia and Alcatel-Lucent,” said Suri. “We are moving fast on the necessary integration planning, and have already established a structure designed to minimize disruption to our ongoing business. We will bring the same operational discipline to our integration activities that we have successfully applied to the earlier transformation at Nokia Networks.”

Suri must be hoping the profitability issue this quarter doesn’t reflect badly on his ‘operational discipline’ in general, and to be fair to Nokia some of its challenges seem to echo those of Ericsson, which lamented the lack of relatively high margin capacity work in its recent quarterlies. But you don’t want too many quarters like this when you’re about to drop €16 billion on an acquisition and Nokia’s shares were down around 7% in pre-market trading this morning.