NSN's fourth-quarter sales drop 22%, prompting refocus on growth

Nokia (NYSE:NOK) Solutions and Networks' year-over-year sales plummeted 22 percent during 2013's fourth quarter and the company predicted shrinking profit margins going forward.

NSN's fourth-quarter sales were about 3.1 billion euros ($4.2 billion). Year-over-year operating profit slid 4 percent to about $331.9 million, while non-IFRS operating profit slipped to $476.7 million, or 39 percent less than the prior-year period.  

NSN's 22 percent decline was partially due to business divestments and the exiting of certain customer contracts and countries. However, excluding these factors, NSN net sales still fell by 15 percent due to slowdowns in the overall wireless infrastructure market, which the company noted had an impact on global services as well as mobile broadband.

Lower sales in GSM and core networks were partially offset by an increase in LTE sales primarily in China, Europe and Asia-Pacific excluding Japan. Regionally, changes in year-over-year sales were as follows: Europe, -21 percent; Middle East and Asia, -13 percent; Asia Pacific, excluding China, -23 percent; Latin America, -35 percent; and North America, -38 percent.

The one region where NSN saw improved year-over-year sales was China, where a 2 percent increase reflected the nation's nascent LTE deployments. During the quarter, the company was awarded the largest market share of non-Chinese network suppliers of China Mobile's nationwide TD-LTE network and won an LTE contract with China Telecommunications Corporation as major partner for its nationwide LTE rollout.

North America saw declines as T-Mobile US' (NYSE:TMUS) LTE rollout tapered down. Rajeev Suri, NSN's CEO, said NSN hopes its October 2013 selection as a project vendor for Sprint's (NYSE:S) Spark initiative, for which NSN will supply TD-LTE equipment, "will help balance our revenue trends in the region in future quarters."

NSN also announced today that Elisa, the leading wireless operator in Finland, selected NSN as its sole LTE network supplier.

Suri said NSN's addressable market will experience flat to modest growth in coming years. Accelerating LTE deployments in China, Europe and the Middle East will be balanced by declines in legacy technology.

NSN will constitute the bulk of Nokia once the parent sells its devices business to Microsoft (NASDAQ:MSFT) in a 5.44 billion euro ($7.4 billion) all-cash transaction that is expected to close soon. But NSN remains in the midst of a multifaceted restructuring effort that included a focus on profitability and cash, and that approach has impacted NSN's net sales.  

NSN now intends to reverse gears and pursue sales growth and market share, while maintaining its full-year non-IFRS operating margin towards the higher end of its targeted long-term non-IFRS operating margin range of 5 percent to 10 percent. The first-quarter 2014 margin is expected to only be around 5 percent due to seasonal weakness.

"The big question is, how do they plan to grow NSN's margins from the first quarter while aggressively going after sales," said Sami Sarkamies, an analyst at Nordea Bank, who was quoted by Bloomberg.

NSN shed 17 percent of its workforce in the year ending Dec. 31, 2013, and wrapped up the year with 48,409 employees.

For more:
- see this Nokia release and this release
- see this Reuters article
- see this Bloomberg article

Related articles:
Report: NSN's fourth-quarter sales fell 19%
Sprint sparks Nokia's network resurgence
Nokia's network unit reports sales decline, looks ahead to growth
Report: Nokia's networks unit may become a 'mini Ericsson'
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