Nokia shares tank some 10% post surprise drop in networks profit

Shares in Nokia tumbled in Helsinki trade following news that the firm's profit at its main telecom network equipment business dropped 61% in the first-quarter, pulled down by lower software sales, high costs and "challenging" market conditions.

Shares in Finland's Nokia, which is set to buy French rival Alcatel-Lucent, were trading 7.98% lower at 12.23pm EEST, on 30 April, after plunging some 10% in the opening minutes post the news.

2015 outlook

Nokia said some of the negative factors contributing to its weak first-quarter results will ease in the second half of the year. However, it adopted a more cautious stance on profitability targets for the full year.

The firm now expects a network operating margin around the midpoint of its earlier goal of 8% to 11%. Analysts polled by Reuters forecast a full-year margin of 11%.

The network unit, where Nokia competes with Swedish market leader Ericsson and China's Huawei, saw its core operating profit fall to €85m (£61.6m, $95m), or 3.2% of sales, compared with analysts' average forecast of €226m.

Nokia reiterated that its plan to acquire smaller rival Alcatel-Lucent will bolster its position in the networks business.

The buyout aims to boost scale to better compete with Ericsson and Huawei, alongside wringing out cost savings of €900m by 2019 amid weak growth prospects for the industry, Reuters reported.

Chief executive Rajeev Suri, speaking to journalists on 30 April, said the "capex conditions are challenging at this point, and there is a little bit more competitive activity overall," referring to capital spending by network operators to upgrade mobile networks in key markets the world over.

Earlier, Suri commented in a company statement: "I remain confident that our lean operating model, ongoing focus on cost management, and the current strength of our portfolio will enable us to meet our 2015 goals for Nokia Networks. The business delivered healthy year-on-year growth even after adjusting for currency fluctuations, although a number of factors in the quarter had a negative impact on profitability. We expect some of these negative factors to ease, particularly in the second half of 2015."

HERE sale

Suri added: "HERE's excellent momentum in the automotive sector continued, helping the business deliver 25% year-on-year growth and improved profitability. As we proceed with the strategic review that we announced on April 15, we are considering our options in order to determine what is best for Nokia shareholders and best for HERE. I am very pleased with HERE's performance and firmly believe that it will have a bright future, either with Nokia or with new ownership."

Nokia runs a network equipment unit and a mapping business and owns a smartphone patent portfolio. It sold its flagship handset business to Microsoft last year.