Nokia Corp. Thursday said that its mainstay network business delivered unsatisfactory profits during the first quarter while a strong performance based on one-off gains at its licensing unit lifted the Finnish company’s quarterly net profit above analysts’ expectations
Although Nokia’s network arm saw its quarterly revenue rise 15% over the year to EUR2.67 billion ($2.94 billion), the unit’s underlying operating profit for the first quarter fell to EUR85 million from EUR216 million, Nokia said in a statement.
The network unit’s “unsatisfactory” profitability was due to higher expenses and more revenue coming from lower-margin hardware sales instead of more lucrative software deals, Chief Executive Officer Rajeev Suri said in a telephone conference call.
The network arm’s quarterly underlying operating profit margin fell 3.2% from 9.3% a year earlier and was well below the company’s long-term target of between 8% and 11%.
Nokia also said that its network unit is now expected to post a full-year 2015 underlying operating profit margin around the midpoint of the long-term target between 8% and 11%.
This will be interpreted as a clear downgrade to Nokia’s outlook, said Mikael Rautanen, an analyst with research company Inderes in Helsinki.
“Market analysts had been expecting [Nokia’s full-year] operating profit margin to hit the top of the guidance range or even be above it,” Mr. Rautanen added.
Despite the network unit’s weakness, Nokia’s net profit for the three months through March came in at EUR177 million, or EUR0.05 a share, beating a median analyst forecast of EUR166 million, or EUR0.04 a share, according to a poll by SME Direkt, a financial data provider.
Nokia reported a net loss of EUR239 million, or EUR0.06 a share, for the first quarter of 2014. The losses stemmed from Nokia’s unprofitable handset unit, which the company sold to Microsoft Corp. in April 2014.
Quarterly revenue rose to EUR3.20 billion from EUR2.66 billion in the same period a year earlier. The growth stemmed in part from favorable currency movements as Nokia, which reports in euros, benefited from a stronger dollar against the euro.
This year’s first-quarter net profit was boosted by a strong performance of Nokia’s technologies unit which manages Nokia’s sizable patent portfolio.
The technologies unit’s first-quarter operating profit rose to EUR192 million from EUR83 in year ago, driven mainly by nonrecurring adjustments to income from existing licensing agreements.
Since Nokia exited its handset business last year, its main business has been making and selling software and equipment such as routers, switches and antennas used in wireless networks that carry voice-calls and mobile data.
In addition to its network and licensing businesses, Nokia also owns HERE, a digital mapping unit which develops and sells map software used in embedded car navigation systems and in mobile devices.
Strong sales to the automotive sector pushed HERE’s first-quarter revenue to EUR261 million from EUR209 a year earlier, and its operating profit rose to EUR11 million from a loss of EUR3 million a year earlier.
Nokia said earlier this month that it might sell HERE which isn’t an integral part of Nokia’s network operations.
Source: Market Watch