Nokia plans more cost-cutting after profit falls 45%

Nokia Corp. reported a 45% fall in second-quarter profit that fell short of market expectations and vowed to step up costs cuts after its recent acquisition of rival French telecoms-equipment supplier Alcatel-Lucent SA.

The Finnish telecom-equipment maker said on Thursday that profit shrank to EUR194 million ($215.3 million) in the three months to end-June compared with EUR355 million profit in the year-earlier period as a stand-alone company.

Revenue, while up sharply at EUR5.68 billion on the Alcatel deal from EUR2.92 billion reported in the same period last year, fell 11% when compared with the EUR6.36 billion in combined revenue Nokia and Alcatel-Lucent reported in the second quarter last year.

Nokia said the second-quarter figures weren’t prepared according to international accounting standards, known as IFRS, in excluding costs related to the Alcatel acquisition in addition to a range of other items that weren’t necessarily indicative of Nokia’s underlying performance.

The decline in sales was largely due to a weak quarter in mobile networks, Nokia said. The Finnish company’s sluggish three months mirrors a sector-wide trend of slowing demand and increased competition in wireless telecom gear

In recent months, the industry has been severely hit by slower demand for network upgrades from telecom carriers in established markets, as many of them last year completed the rollout of new-generation wireless networks, while service providers in emerging markets face faltering economic growth.

At the same time, Nokia is facing stiff competition from Chinese companies Huawei Technologies Co. and ZTE Corp., two players which have gained significant market shares in a few years’ time by offering innovative products at competitive prices.

Nokia said it is now targeting EUR1.2 billion in annual cost savings by 2018, compared with EUR900 million it had announced before.

“As our successful integration work continues and as we get increased granular visibility into the business, our confidence in our ability to deliver cost savings also increases,” said Nokia Chief Executive Rajeev Suri in a statement.

Nokia had announced thousands of job cuts as a result of its cost-saving plans. The company recorded around EUR600 million of restructuring and associated charges in the second quarter.

Nokia is betting on the development of fifth-generation wireless networks, but analysts say it might take years before telecom providers start upgrading their networks to 5G.

To diversify its product portfolio to include internet gear such as routers and switches, Nokia acquired Alcatel in a EUR15.6-billion deal completed earlier this year. It is also trying to increase revenue from up-and-coming services and products such as cloud computing and Internet-of-Things networks, but takeup so far hasn’t been able to reverse the downward trend.

Mr. Suri said he expected a slight sequential improvement on both net sales and operating margin in Nokia’s networking business from the second quarter to the third, followed by “significant improvement” in the second half of the year.

Analysts, according to a poll by data provider FactSet, had estimated Nokia’s second-quarter profit at EUR207 million and revenue at EUR5.76 billion.

Source: MarketWatch