Network maker Nokia outperforms Ericsson in third quarter

Nokia  on Thursday reported falling quarterly sales and profits for its network gear business, but outperformed rival Ericsson in a weak market thanks to cost cuts after its recent acquisition of Alcatel-Lucent.

Finland’s Nokia said total third-quarter operating profit decreased 18 percent from a year ago to 556 million euros ($606 million), but was buoyed by a one-off patent licensing payment. Analysts’ average expectations were for just 430 million euros.

Group sales dropped 7 percent from a year ago to 5.95 billion euros, including network equipment sales falling 12 percent to 5.32 billion, which compared with a market consensus of 5.39 billion.

In the third quarter, the networks unit’s operating margin was 8.1 percent, compared with a market view of 7.6 percent.

Sweden’s Ericsson, which replaced its chief executive this week, spooked investors earlier this month as it said its quarterly profit plunged more than 90 percent.

“Nokia was able to achieve surprisingly good margins in the networks business,” said Inderes Equity Research analyst Mikael Rautanen, with a “reduce” rating on the stock. “It’s a defensive win for Nokia, after the market was spooked by Ericsson.”

“The trend of declining sales is similar for both companies, but Nokia has been better prepared for slowing demand by continuously improving its efficiency,” Rautanen said.

Nokia projected global network equipment demand was set to fall for the rest of 2016, but for declines in sales to taper in 2017.

“As we look forward, we expect (market) conditions to stabilize somewhat in 2017, with the primary addressable market in which Nokia competes likely to decline in the low single digits for that year,” Chief Executive Rajeev Suri said in a statement.

Nokia bought Alcatel Lucent earlier this year to better compete with Ericsson and China’s Huawei in a global telecom equipment market with limited growth prospects until a fresh cycle of network upgrades is slated to begin around 2020.

Nokia is cutting thousands of jobs worldwide following the merger as it seeks savings targets of 1.2 billion euros in 2018.

The company also on Thursday said its chief financial officer Timo Ihamuotila, who had helped the company to restructure from a troubled mobile handset maker into a network equipment company, would resign to join Swiss engineering group ABB.

Source: Reuters