Nokia says telecoms gear market tough, but outpacing Ericsson

[November 15, 2016]  By Eric Auchard and Jussi Rosendahl

BARCELONA/HELSINKI (Reuters) - Nokia  said on Tuesday it was outperforming arch-rival Ericsson in a weak telecoms equipment market, but its shares fell as its dividend and profitability forecasts fell short of analysts' expectations.

Telecoms network suppliers are struggling after demand for 4G mobile broadband equipment peaked last year, and with upgrades to next-generation 5G equipment still years away.

Nokia, which bought rival Alcatel-Lucent earlier this year in a bid to cope, said at an investor meeting in Barcelona, Spain, its network equipment sales were likely to fall around 2 percent next year, in line with the broader market, and return to modest growth in 2018.

The Finnish company said the market was the toughest it had been for years but that it was faring better than bigger rival Ericsson, which has issued a dramatic profit warning and ousted its chief executive.

"Nokia is not Ericsson. They are in crisis. We outperformed them in every area," Chief Executive Rajeev Suri said.

Some analysts, however, were disappointed by Nokia's dividend and profitability targets, and its shares fell as much as 7.7 percent to a three-year low of 3.658 euros.

"People were hoping for better," Societe Generale analyst Alexander Peterc said, noting Nokia had pared back share buybacks and planned to increase its dividend only modestly.

"All these measures point to a company being highly focused on cash-conservation," he said. Peterc recently joined SocGen and has no formal rating on Nokia shares.

TOUGH TIMES

Nokia said cost cuts would help to boost its network unit's operating margin to 8-10 percent in 2017 from an estimated 7-9 percent in 2016, and to 10-15 percent in the long-term. It also said it planned a dividend of 0.17 euros per share for 2016.

Analysts polled by Reuters last month had expected a 2017 margin of 10.5 percent and a dividend of 0.20 euros.

Nokia also left unchanged its target for 1.2 billion euros in net savings through 2018 as it integrates Alcatel-Lucent, disappointing some analysts who had hoped for an increase.

Buying Franco-American Alcatel-Lucent expanded Nokia's business in fixed-line telecoms equipment and optical networks, which some analysts say has helped it to outperform Ericsson.

A photo illustration of a man silhouetted against a Nokia logo in the central Bosnian town of Zenica January 23, 2014. REUTERS/Dado Ruvic/File Photo

Setting out its forecasts, Nokia said it expected the network equipment market to decline in Europe, China and Latin America next year, while remaining flat in North America, Middle East, Africa and Asia, outside of China.

"The mobile network market is (in) the toughest shape it has been in my lifetime," Chief Financial Officer Timo Ihamuotila told investors.

However, Nokia forecast the network gear market would return to modest growth in 2018 fueled by a rebound in several regions, although demand would remain flat in Europe and fall over the next five years in Greater China.

Once known for its mobile phones, Nokia sold the handset business to Microsoft in 2014, leaving it with the networks business and a portfolio of technology patents.

Suri said Nokia was seeking new licensees for the patent business, adding talks with Chinese smartphone makers were starting to show promise.

Nokia will be in arbitration with South Korean smartphone maker LG Electronics in 2017 after agreeing a new patent licensing deal with Samsung Electronics <005930.KS> this year.

(Additional reporting by Tuomas Forsell; Editing by Mark Potter)
 

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