Adam Ewing Stockholm
NOKIA stuck to a forecast for weakening profitability, underscoring the challenges for chief executive Rajeev Suri to revive the Finnish network maker amid competition from Ericsson and Huawei Technologies.
The adjusted operating margin at the network division, Nokia’s biggest business, would probably shrink this year, the company said yesterday. Fourth-quarter adjusted earnings were 9 euro cents (R1.18) a share, missing the 9.5c average of analysts’ estimates.
Shares of Nokia fell as much as 5.9 percent from an almost four-year high as the forecast signalled the biggest increases in profitability are done. Suri has boosted margins by cutting jobs and focusing on more lucrative equipment and service contracts since taking over last May.
“It’s difficult to see the share price going up without a significant earnings beat,” Sebastien Sztabowicz at Kepler Cheuvreux in Paris said. After the recent gains, Nokia’s valuation was about 40 percent higher than that of Ericsson, he said.
Outlook
The adjusted operating margin at Nokia’s network division, accounting for about 90 percent of sales, expanded to 12.2 percent last year from 9.7 percent in 2013. The Finland-based company reiterated that the margin for 2015 would be within its long-term target of 8 percent to 11 percent.
Shares closed at e7.15 in Helsinki, the highest level since February 2011 on Wednesday.
Nokia also said network sales and margins would drop this quarter from the previous three months, a seasonal effect after companies typically ramp up spending at the end of the year.
With the sale of its cellphone business to Microsoft last year, providing network equipment and services to carriers has become Nokia’s mainstay business.
Sweden’s Ericsson is the largest maker of wireless networks, and its seeking to expand in areas such as cloud-computing services for wireless carriers to bore deeper into its clients’ operations.
China’s Huawei is working toward a goal announced in April of achieving $70 billion (R809bn) in sales by 2018. Its sales increased about 20 percent to at least 287 billion yuan (R538bn) last year, from 239 billion yuan in 2013, chief financial officer Cathy Meng said on January 13.
Nokia’s fourth-quarter net income was e443 million after a loss of e26m a year earlier. The profit was Nokia’s second consecutive quarterly net income from continuing operations, after more than e5bn of losses over the previous three years as its handset unit lost ground to rivals. – Bloomberg