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Alcatel Integration Weighs Down Nokia Network Sales

Alcatel Integration Weighs Down Nokia Network Sales
As customers hold off new orders while it integrates its purchase of rival Alcatel-Lucent, Nokia's mobile network equipment sales fell more than expected in the first quarter and will continue to decline this year, the Finnish company said.
With the aim to help it more broadly compete with Sweden's Ericsson  and China's Huawei in both fixed-line and mobile network equipment, Nokia had bought Franco-American Alcatel for 15.6 billion euros ($17.8 billion) earlier this year.
Growth in Alcatel's fixed-line equipment business softened the blow from the decline of Nokia's mobile wireless business, showed the first unified results after the deal.
Missing analysts' average forecast of 5.51 billion in a Reuters poll, the first-quarter network sales in total dropped 8 percent in from a year ago to 5.18 billion euros.
There was a drop of 17 percent in the sale of the company in the largest market of the company - North America. Furthermore, the sales of the company were up 6 percent in Latin America while the figures for the same were down by 11 percent in the Middle East, 6 percent in Asia-Pacific and 5 percent in China.
"Some of our customers could be holding back a bit while waiting for deliveries from our new combined road map," Chief Financial Officer Timo Ihamuotila told reporters in a conference call. This is the time that the company is trying to shrink two product portfolios into one.
"However, we have no reason to believe we have lost footprint with any of our major customers," he said.
Compared with "approximately" 900 million euros before, Nokia sought to make savings of "above" 900 million euros in the course of 2018 as it nudged up its cost-cutting target for the merger.
Saying it would axe thousands of jobs worldwide, including 1,400 in Germany and 1,300 in Finland, the cost curtailment exercise of the company started this month.
"The decline in (Nokia's) wireless networks was surprisingly fierce ... The market remains difficult, which seems to add pressure to step up their cost-savings program," said Mikael Rautanen, analyst at Inderes Equity Research, who has an "increase" rating on the stock.
Nokia shares were down 3.1 percent on Tuesday. Along with mobile networks market leader Ericsson, which last month posted its sixth consecutive quarter of declining sales, Nokia’s stock has also fallen recently.
An operating margin of more than 7 percent, compared with 6.5 percent in the first quarter was forecast by Nokia for the full year along with a forecast for falling network sales. Analysts had made an average estimate of 9.4 percent fall in operating margins. Once the cost cuts from the merger have been completed, analysts expect the margin to rise to 11.6 percent by 2018.
In the first quarter there was a fall of 27 percent in the sales in Nokia's small technologies unit that includes its vast patent portfolio. Citing uncertainties in timing of some licensing deals, Nokia did not provide an annual outlook for the unit.
Weakening sales of smartphones was hurting the business, Rautanen said. Nokia fell back to competition in the smartphone era created with the advent of the Apple iPhone in 2007 even though he Finnish company had once ruled the global handset business. While holding on to its patents, the company eventually sold its phone unit to Microsoft in 2014.

Christopher J. Mitchell

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