Nokia garnered a mixed response from financial analysts after announcing a 9 per cent drop in net sales year-on-year in the opening quarter based on a comparison of combined figures with Alcatel-Lucent.
Moody's analyst Tim Whatmough stated that the combined first quarter earnings showed that Nokia is "progressing well" with the task of integrating Alcatel-Lucent's operations, the Financial Times reported.
However, Inderes Equity Research analyst Mikael Rautanen told Reuters that the drop in Nokia's first quarter sales -- which was primarily caused by lower mobile infrastructure revenues -- was "surprisingly fierce" and ramps up the pressure on Nokia to achieve cost savings.
Combined earnings figures for Nokia and Alcatel-Lucent show that non-IFRS net sales fell from €6.1 billion ($6.9 billion) in the first quarter of 2015 to €5.6 billion in the recent quarter due to lower revenue from core businesses including the networks and ultra-broadband networks. However, non-IFRS operating profit of €345 million in the first quarter of 2016 was up 25 per cent on the comparable 2015 period, and operating margin improved by 170 basis points to 6.2 per cent.
Nokia uses non-IFRS earnings figures to provide an indication of its underlying business performance.
CEO Rajeev Suri said the first quarter earnings figures showed the value in Nokia's merger with Alcatel-Lucent. He noted that the vendor delivered "solid profitability in what is typically a seasonally weak quarter and at a time when the risk of integration-related disruption was high."
Suri added that the drop in sales in the opening quarter "was largely driven by mobile networks, where the challenging environment is not a surprise."
Nokia CFO Timo Ihamuotila told journalists that some customers could be holding off placing orders until the company completes the task of updating its product lines, Reuters reported.
The drop in Nokia's infrastructure sales is in line with industry trends for the first quarter of 2016. For example, Ericsson also recently reported a drop in first-quarter infrastructure sales, which it blamed on a weak macro-economic environment in some emerging markets along with the completion of mobile broadband projects in Europe.
Suri's view regarding the value of Alcatel-Lucent was borne out by Nokia's standalone first-quarter earnings comparison. Non-IFRS profit declined from €184 million in the first quarter of 2015 to €139 million in the recent quarter, and the vendor slipped to a reported net loss of €613 million in the recent quarter from a profit of €169 million in the 2015 period.
For more:
- see Nokia's earnings statement
- see the vendor's full Q1 report (PDF)
- view this Financial Times article
- see this Reuters report
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