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Nokia Sees Profits Surge but Warns of China Slowdown

February 11, 2016, 8:50 AM UTC
Nokia's Chief Executive Rajeev Suri addresses a press conference at the Nokia head offices in Espoo, Finland, on April 17, 2015. AFP PHOTO / LEHTIKUVA / Markku Ulander *** FINLAND OUT *** (Photo credit should read MARKKU ULANDER/AFP/Getty Images)
Photograph by Markku Ulander — AFP/Getty Images

Finland’s Nokia reported better-than-expected profits for its mainstay telecom network equipment business but warned that rollouts for new mobile networks would start to slow this year in its most vital market China.

Nokia‘s network gear business, which accounts for more than 90% of its stand-alone sales, reported fourth-quarter operating profit margin of 14.6%, compared with 14.0% a year earlier and 13.8% in a Reuters poll of analysts.

Net sales for the Nokia group decreased 3% in constant currency terms to €3.609 billion ($4.08 billion), it said.

“They didn’t give any financial guidance for this year, and all they said about the outlook was that the (networks) market demand looks rather weak. This is a bit like walking in fog,” said Mikael Rautanen, analyst at Inderes Equity Research.

“But the result was strong, the networks unit is in a very good shape, and Alcatel also put out some good quarterly numbers,” said the Helsinki-based analyst, who recommends investors reduce their holdings in the stock.

Nokia (NOK) last month started to combine its operations with Alcatel-Lucent (ALU), and this week it said it holds 91% of Alcatel shares following a second round of its €15.6 billion all-stock offer.

Separately, Alcatel-Lucent said in a statement that its fourth-quarter adjusted operating profit grew to €560 million from €284 million a year ago, helped by stronger sales at the end of the year, notably in software.

Revenue over the period rose 13% to €4.16 billion.

Catch-up patent payments from Samsung Electronics helped Nokia‘s total operating profit in the quarter grow 46% from a year ago to €734 million ($829 million), roughly in line with market consensus.

Nokia proposed an annual dividend of €0.16 per share and a special dividend of €0.10 per share, compared with analysts’ average expectation of €0.19.

Nokia said it would issue its full-year outlook for the combined networks business in conjunction with its first quarter results.

The acquisition is aimed at helping Nokia compete with Sweden’s Ericsson (ERIC) and China’s Huawei in the network gear market where limited growth and tough competition are pressuring prices.