Nokia Sales Drop as Wireless Carriers Curb Network Spending

Updated on
  • Stock falls as mobile-equipment slump offsets landline gains
  • Wider product range helps Nokia outperform rival Ericsson

Nokia Oyj reported a 6 percent decline in sales and warned that waning demand for wireless-network equipment will continue to weigh on revenue this quarter. The stock slumped.

Third-quarter sales fell to 6 billion euros ($6.5 billion), led by a 12 percent drop in network revenue, Nokia said in a statement Thursday. Analysts estimated 5.86 billion euros on average. Earnings of 4 cents a share were in line with predictions.

Nokia and rivals such as Sweden’s Ericsson AB are suffering as wireless carriers limit network expenditures after completing the latest investment cycle. Still, Nokia’s purchase of Alcatel-Lucent SA is helping the Finnish company cope better with the slump than its Swedish peer, which is more reliant on wireless equipment. While mobile-gear sales drop, cable and internet-service providers are bolstering their networks as the amount of data and video traveling on their systems increases.

“The market has been soft, particularly in mobile infrastructure,” Chief Executive Officer Rajeev Suri said on a call with reporters. “Challenging networks markets are nothing new to Nokia and I believe we remain well positioned.”

Shares of Nokia slid 7.5 percent to 4.33 euros at 12:18 p.m. in Helsinki. They have lost 34 percent this year, compared with a 47 percent drop by Ericsson.

‘Soft’ Market

The fourth quarter is expected to be “soft from a topline perspective,” Suri said in the statement. Network demand will “stabilize somewhat in 2017, with the primary addressable market in which Nokia competes likely to decline in the low single digits for that year,” he said.

Nokia’s forecast for this quarter reflects a deteriorating market, Bernstein analyst Pierre Ferragu said in a note. While a continued year-on-year decline is “obviously disappointing,” Ferragu said investors should note that “these lower revenue levels seem well controlled by the company.”

Revenue from mobile-network equipment fell 15 percent in the third quarter, Suri said on the call. Wireless customers in key markets such as the U.S. have largely built so-called fourth-generation networks, and the next round, dubbed 5G, isn’t ready for wide deployment.

Ericsson reported a 19 percent drop in its networks business this month. The company also posted its first loss in almost four years and named a new CEO Wednesday.

With intense competition from China’s Huawei Technologies Co. adding to the pressure of a shrinking wireless market, Nokia broadened its portfolio by buying Alcatel-Lucent for about $18 billion. Demand for fiber and copper broadband networks, among Alcatel-Lucent’s fortes, is increasing as service providers expand coverage and capacity to cope with the popularity of services such Netflix.

‘Tight Control’

Since the Alcatel-Lucent tie-up was finalized in January, Nokia has also focused on squeezing out expenses, raising the annual cost-savings target to 1.2 billion euros by 2018 from 900 million euros by 2019 when the acquisition was announced. Suri said Nokia is prepared to take more measures if needed.

“We have tight control over the business and are ready to pull additional operating levers to maximize value,” he said on the call.

Nokia said it is on track to boost its sales and operating margin in the networks business sequentially this quarter, and is set to reach its full-year operating margin forecast of 7 percent to 9 percent.

The company also named Kristian Pullola as chief financial officer, replacing Timo Ihamuotila, who is joining ABB Ltd.