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Here’s Why Nokia Shares Are Dropping

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Alcatel-Lucent CEO Michel Combes (R) and Nokia CEO Rajeev Suri shake hands during a press conference.Photograph by Thomas Samson/AFP via Getty Images

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, as customers hold off new orders while it integrates its purchase of rival Alcatel-Lucent.

Nokia (NOK) bought Franco-American Alcatel for 15.6 billion euros ($17.8 billion) earlier this year to help it more broadly compete with Sweden’s Ericsson (ERIC) and China’s Huawei in both fixed-line and mobile network equipment.

The first unified results after the deal showed growth in Alcatel’s fixed-line equipment business softened the blow from the decline of Nokia’s mobile wireless business.

First-quarter network sales in total dropped 8% in from a year ago to 5.18 billion euros, missing analysts’ average forecast of 5.51 billion in a Reuters poll.

Sales fell 17% in North America, the company’s largest market. They were down 11% in the Middle East, 6% in Asia-Pacific and 5% in China, but up 6% in Latin America.

“Some of our customers could be holding back a bit while waiting for deliveries from our new combined roadmap,” Chief Financial Officer Timo Ihamuotila told reporters in a conference call, as the company shrinks two product portfolios into one.

“However, we have no reason to believe we have lost footprint with any of our major customers,” he said.

 

Nokia nudged up its cost-cutting target for the merger, seeking savings of “above” 900 million euros in the course of 2018, compared with “approximately” 900 million euros before.

The company started the cuts month, saying it would axe thousands of jobs worldwide, including 1,400 in Germany and 1,300 in Finland.

“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% at 8:20 GMT. The stock has fallen recently along with that of mobile networks market leader Ericsson, which last month posted its sixth consecutive quarter of declining sales.

For the full year, Nokia forecast falling network sales and an operating margin of more than 7%, compared with 6.5% in the first quarter and analysts’ average estimate of 9.4%. Analysts expect the margin to rise to 11.6% by 2018, once cost cuts from the merger have been completed.

Sales in Nokia’s small technologies unit, which includes its vast patent portfolio, fell 27% in the first quarter. Nokia did not provide an annual outlook for the unit, citing uncertainties in timing of some licensing deals.

Rautanen said the business was being hurt by weakening sales of smartphones. Nokia once ruled the global handset business but failed to compete in the smartphone era created with the advent of the Apple iPhone in 2007. It eventually sold its phone unit to Microsoft in 2014, while holding on to its patents.