Nokia (NYSE:NOK) will reportedly disclose a continuing decline in infrastructure sales just as it prepares to leave its handset history behind and become primarily a network equipment company.
The company's infrastructure business, Nokia Solutions and Networks (NSN), is expected to report a 19 percent decline in fourth-quarter 2013 sales to 3.2 billion euros ($4.3 billion) when it reports quarterly and year-end 2014 results on Thursday, according to Reuters. The lower numbers are primarily due to the wrapping up of major wireless broadband projects in Japan and South Korea. Asia, including China, accounted for some 41 percent of NSN's sales in the third quarter.
Nonetheless, NSN is expected to report a strong adjusted operating margin for the fourth quarter. The company earlier forecast the margin would come in at around 12 percent, plus or minus 4 percentage points, compared with 8 percent in the third quarter, Reuters said.
NSN has helped rescue the struggling parent company in recent quarters. During the third quarter of 2013, NSN delivered its eighth consecutive quarter of positive free cash flow and the second-highest growth margin in its history.
However, NSN's year-over-year net sales plummeted 24 percent to nearly $3.57 billion during the third quarter, with some of the decline attributed to business divestments and exits from certain contracts and countries. Even excluding those issues, net sales declined year-over-year by some 20 percent.
Part of NSN's turnaround was based upon an intentional focus on profits rather than revenues, but the company's continued sales decline means management will increasingly need to consider sacrificing profitability in exchange for revenues.
Nokia will retain its NSN business, which will make up the bulk of the parent company after Microsoft pays $7.2 billion for Nokia's handset business and a license to its patents and mapping software. Fourth-quarter results from Nokia's handset business will be counted as discontinued operations, given that the Microsoft deal is expected to close soon.
Reuters said Nokia is expected to report lower handset shipments for the fourth quarter. However, its quarterly smartphone shipments may have seen a 53 percent year-over-year increase, a positive sign given that the Nokia brand has struggled to compete in the smartphone market despite retaining strength in lower-end feature phones.
Once the handset division is sold, Nokia will select a new CEO. Rajeev Suri, NSN's CEO, may be a leading contender for the role given his deft turnaround of NSN. Another Nokia insider reportedly being considered is Timo Ihamuotila, Nokia's CFO and interim president.
Rumors still abound regarding a potential tie-up between Nokia and rival infrastructure provider Alcatel-Lucent (NYSE:ALU), which some analysts contend would make Nokia a stronger competitor against perennial market powerhouse Ericsson (NASDAQ:ERIC) as well as Chinese competitors Huawei and ZTE.
For more:
- see this Reuters article
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