Nokia Reports Operating Loss on Nokia Siemens Costs

Nokia Oyj (NOK1V) reported a first-quarter operating loss of 1.34 billion euros ($1.8 billion), burdened by costs at the unprofitable equipment venture with Siemens AG. (SIE) The stock sank to the the lowest price in 15 years.

The loss includes 1.1 billion euros in one-time charges, of which 772 million euros were for Nokia Siemens Networks, Espoo, Finland-based Nokia said today. Revenue fell 29 percent to 7.35 billion euros, the lowest since 2004, as handset sales slumped in emerging markets and margins in smartphones shrank.

Chief Executive Officer Stephen Elop, five months after shipping the first phone based on Microsoft Corp. (MSFT)’s Windows Phone software, is now turning his attention to Nokia Siemens, the venture in which he tried to sell a stake last year before talks collapsed. After sales fell 7 percent with an adjusted operating loss of 5 percent of revenue, the venture predicts a “clear” improvement in profitability this quarter.

“Whether the rest of the year will become acceptable for NSN is written in the stars,” said Thomas Langer, an analyst at WestLB in Dusseldorf who recommends selling Nokia shares. Nokia Siemens “has to show in coming quarters that it can attain a margin of more than 5 percent. As long as they can’t show that it will remain a ball and chain for Nokia.”

Nokia Siemens, whose main competitors are Ericsson AB and Huawei Technologies Co., announced plans in November to eliminate 17,000 jobs, or about 23 percent of its workforce, to focus on mobile broadband and services. The venture, still with more than 68,000 employees last quarter, has been unprofitable in all but two quarters since it was set up in April 2007.

‘Pretty Deep’

Nokia fell as much as 5.6 percent to 2.86 euros and traded at 2.94 euros, or 2.8 percent lower, as of 5:36 p.m. in Helsinki. That’s the lowest level since April 1997. It has lost 23 percent of its value in the past week alone after saying on April 11 that the main handset business lost money last quarter and will do so again in the current period.

The first-quarter net loss was 929 million euros, bringing the total losses in the past year to 2.4 billion euros.

“Even the restructuring we think is pretty deep and pretty structural, and we continue to pursue all options as we go forward,” Elop said on a conference call. He wouldn’t elaborate on the future structure and ownership of Nokia Siemens.

Elop vowed last week to take “significant” structural actions, including potential asset sales, to survive amid competition with Apple Inc. (AAPL) and Chinese manufacturers such as ZTE Corp. (000063) The CEO has announced more than 10,000 job cuts since the linkup with Redmond, Washington-based Microsoft.

Six-Year Low

“We’re acting with urgency and we will communicate these details as quickly as possible,” Elop said today. “We will make any changes to our organization and team that are complementary to our renewed focus.”

Once dominant in the mobile-phone industry, Nokia’s market capitalization has fallen by about 70 billion euros since Apple Inc. introduced the iPhone in 2007. Last quarter, Nokia’s shipments slid 24 percent to 83 million phones, the lowest level in almost six years.

Nokia, which is phasing out its homegrown Symbian system, sold about 2 million handsets from the new Lumia line running Windows Phone. It plans to increase advertising spending on Lumia this quarter, Elop said.

Still, its low-end phones failed to cover the costs of smartphone transition as rivals introduced cheaper touchscreen models in India and China, many based on Google Inc. (GOOG)’s Android software.

Debt Rating

Colin Giles, a 20-year Nokia veteran who was appointed by Elop in February 2011 to lead Nokia’s sales organization, will leave Nokia in June for personal reasons, Nokia said today. Giles ran the company’s China operations before becoming executive vice president of sales, and stepped in again last year to revamp the company’s China operations.

Nokia’s four regional senior vice presidents and the heads of sales operations will now report directly to Niklas Savander, executive vice president of markets.

Moody’s Investors Service cut Nokia’s rating to one step above junk this week, and said it may reduce it further if Lumia fails to pick up or if the handset margin deteriorates further. A further cut by any of the top three debt rating companies would put the ranking to junk.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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Photographer: Spencer Platt/Getty Images

People walk past an advertisement for the Nokia Lumia 900 phone in New York City.

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Photographer: Spencer Platt/Getty Images

People walk past an advertisement for the Nokia Lumia 900 phone in New York City. Close

People walk past an advertisement for the Nokia Lumia 900 phone in New York City.

Photographer: Jin Lee/Bloomberg

Chief Executive Officer Stephen Elop is struggling to halt slumping handset sales in emerging markets and sliding margins in smartphones. Close

Chief Executive Officer Stephen Elop is struggling to halt slumping handset sales in emerging markets and sliding... Read More

Photographer: Simon Dawson/Bloomberg

Nokia sold about 2 million handsets from its new Lumia line running Windows Phone. Close

Nokia sold about 2 million handsets from its new Lumia line running Windows Phone.

Photographer: Tomi Setala/Bloomberg

A sign stands at the entrance to the Nokia Oyj factory in Salo. Close

A sign stands at the entrance to the Nokia Oyj factory in Salo.

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