Nokia Oyj forecast rising profit margins at the network unit that will become its main business after the mobile-phone division it struggled to turn around is sold to Microsoft Corp. The stock jumped.
Operating profit, excluding some costs, will be as high as 16 percent of sales at the network unit this quarter, Espoo, Finland-based Nokia said Tuesday. That compares with 8.4 percent last quarter and shows that job cuts are helping to revive the once-faltering division, called Nokia Solutions and Networks.
Nokia, which will get more than 90 percent of sales from NSN after the handset-division sale to Microsoft, has cut more than 21,000 jobs to rejuvenate the business. The next challenge is to jump-start sales — Nokia on Tuesday posted the lowest revenue in 14 years — as carriers curb spending and larger Ericsson AB and Huawei Technologies Co. snap up contracts.
"The NSN margin guidance is certainly what's pushing the shares up," said Sami Sarkamies, an analyst at Nordea Bank AB in Helsinki. "But with the unit's sales so far below expectations, management may need to make the trade-off and sacrifice some profitability to boost revenue. NSN needs to do much more to lift sales."
Sales at NSN, which Nokia fully took over from Siemens AG last quarter, fell 26 percent to $3.6 billion.
This quarter, adjusted operating profit at the network unit will be 12 percent of sales, plus or minus 4 percentage points, Nokia forecast. Sarkamies estimated about 10 percent.
Because the handset unit will cease to be part of Nokia, its performance has little effect on the company's share price, according to Sarkamies. Nokia's value is now mainly tied to NSN, as well as what Nokia decides to do with its cash, said the analyst. Nokia ended the quarter with 9.1 billion euros in gross cash and is set to receive 5.44 billion euros as part of the Microsoft deal, expected to be completed in the first quarter.
NSN, whose customers are wireless carriers such as Vodafone Group Plc, sells antennas and base stations that transmit calls and allow mobile-phone and tablet users to surf the Internet. NSN, run by Rajeev Suri, also competes with Ericsson and Huawei for contracts to service the equipment.
"As we approach 2014 the restructuring program is successfully coming to an end," Suri said on a conference call. NSN will turn its sights on "strengthening our top-line performance."
Sweden's Ericsson and France's Alcatel-Lucent SA also have cut jobs as China's Huawei has won more business. Ericsson, the largest maker of wireless networks, said a year ago it would reduce 1,550 jobs in Sweden to make up for weak demand and last week reported a 2.9 percent drop in third-quarter sales.
Huawei, China's largest maker of phone equipment, said in February it is targeting a 9 percent increase in revenue this year for its division that designs and builds wireless networks. The unit had sales of $25.7 billion in 2012.
To fight back, Nokia is considering a tie-up with Alcatel -Lucent's wireless-equipment unit, a person familiar with the plan said last month. Unprofitable Alcatel-Lucent, which is slashing 10,000 jobs to accelerate a cost-cut plan, is scheduled to report earnings Thursday. Asked about a potential combination with Alcatel-Lucent, Suri said "it would not be wise to rule out something" that could add value to shareholders.
Nokia agreed to sell its mobile devices to Microsoft after struggling to regain relevance in smartphones following Apple Inc.'s iPhone introduction in 2007. Once the world's largest smartphone maker with a market share topping 50 percent, Nokia now ranks outside the top five with about 3 percent share.
Source : Tulsa World
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