Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) reported better-than-expected June quarter results on July 24. The Finnish networking equipment maker reported revenue of €2.94 billion ($3.99 billion) with operating income of €346 million. The company reports operating margins of 11.8%, well above Raymond James’ estimate of 10.5%.
Networks makes up 87% of Nokia’s revenue
With €2.57 billion in sales, Networks remains the biggest contributor to Nokia’s total revenue. HERE maps unit generated €233 million in revenues while Technology segment sales came in at €147 million. The Finnish company also raised its Q3 outlook. Though the market has been upbeat about Nokia’s performance and raised the outlook, Raymond James analysts Simon Leopold and Victor Chiu says the company is facing mature wireless trends, and comparisons become harder.
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Raymond James said that multiple new projects could boost revenues. But they may hurt Networks segment margins. After the sale of its handset unit, Networks accounts for 87% of Nokia’s revenues. Operating margins at Networks segment declined 80 basis points in the latest quarter. However, the company management is optimistic. Nokia said during the earnings call that Networks operating margin would meet or exceed the higher end of its long-term target range of 5%-10%.
HERE and Technology units to drive Nokia’s long-term earnings growth
Raymond James expects Nokia overall operating margins to be near 12% in the current quarter and 15% in the fourth quarter of this year. However, analysts noted that the wireless infrastructure market has matured, creating tougher comparisons for the Finnish company. Over the long-term, HERE and Technology segments should drive earnings growth.
Nokia currently has about €7 billion or €2 per share in cash. Though the company will be paying regular and special dividends, it will maintain a healthy cash balance. Analysts expect Nokia to make strategic acquisitions, but it is unlikely to go for large, transformational deals. Raymond James has a Market Perform rating on Nokia with a favorable bias.
Nokia shares fell 1.40% to $8.12 at 11:37 AM EDT on Monday.