Nokia Corp Profit Drops But Still Beats Expectations

The Finnish network equipment maker Nokia reported a less-than-expected drop in its quarterly profits, aided by the acquisition of French rival Alcatel-Lucent and cost cuts. The results from the fourth quarter cap the first full year since the Finnish smartphone maker bought Alcatel-Lucent SA.

Nokia focuses more on profitability than growth

Last year, the Finnish firm acquired Alcatel-Lucent to widen its operations and is currently axing thousands of jobs as it seeks to cut $1.3 billion (1.2 billion euros) of annual costs by 2018. The company expects the global networks market to drop by around 2% this year, but it also sees opportunities in markets like Japan, India and North America, notes Reuters.

Nokia said the tough global market was starting to stabilize. The Finnish company and its competitors, China’s Huawei and Sweden’s Ericsson, have lately struggled as demand from operators for faster 4G mobile broadband equipment has increased.

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Inderes analyst Mikael Rautanen, who has an Accumulate rating on the stock, said Ericsson, Huawei, and Nokia are concentrating more on profitability than growth, adding that the market will drop this year, but the price pressure will ease, according to Reuters.

Profit falls but beats expectations

For the Nokia group, fourth quarter earnings before taxes and interest dropped 27% from a year ago to $1 billion (940 million euros), but they were well above the average forecast of 788 million euros. Sales in the networks unit dropped 14%, which was more than expected, but the operating margin came in at 14.1%, more than the market forecast of 11.7%.

The networks margin was 8.9% in the full year 2016, while for 2017, the company expects a margin between 8% and 10%. Last year’s fourth quarter was anchored by the sale of its digital mapping business to a group of Germany-based automakers.

On a conference call, Nokia CEO Rajeev Suri told reporters, “We continue to expect our performance to improve in 2017 and see the potential for margin expansion in 2017 and beyond, as market conditions improve and our sales transformation programs gain further traction.” “Our plan is to make the most of the market this year, be efficient, maintain our pricing discipline, ensure our synergies happen and we get the cost reductions.”

Nokia said that its board of directors will propose a dividend of 0.17 euro a share for 2016, in comparison with 0.16 euro for 2015.

In pre-market trading, Nokia stock was up more than 2%. On Wednesday, the stock closed up 1.11% at $4.57. Year to date, the stock is down almost 5%, while in the last year, it is down almost 37%.