Nokia posted sales that missed analysts' predictions in its first quarterly report as a combined company with Alcatel-Lucent SA, hurt by phone carriers cutting spending on wireless networks.
Sales in the first quarter fell 9 per cent to euro 5.6 billion ($6.4 billion), Nokia said in a statement Tuesday. Analysts predicted 5.76 billion euro, the average of estimates compiled by Bloomberg. Adjusted gross margin was 39.4 per cent, surpassing the average estimate of 37.4 per cent.
Nokia bought Alcatel-Lucent to expand its product range beyond mobile infrastructure as demand from phone carriers wanes. Chief Executive Officer Rajeev Suri is betting on the deal to tap into newer products such as Internet-protocol networks, while boosting Nokia's software offering and research and development capabilities to fend off rivals Ericsson AB and Huawei Technologies Co.
"Sales were a bit weak, but Nokia showed stronger profitability mostly because of Alcatel-Lucent's contributions from its fixed-line and IP and applications businesses," said Mattias Lundberg, an analyst at Swedbank AB in Stockholm.
Shares of Nokia fell 1.7 per cent to 4.92 euro at 10:09 am in Helsinki. They had tumbled 24 per cent this year through Monday. The merger is also aimed at reducing costs. Nokia is set to eliminate about 10,000 to 15,000 positions from the combined staff of 104,000.
Seeking savings by reducing overlapping products, services and sales positions. Savings from the merger are set to surpass the company's previous estimate and top 900 million euro in 2018, Nokia said.
Phone carriers are curbing investments after spending billions of dollars in the past years to build speedier fourth-generation networks so smartphones can stream video and audio more quickly. With much of the 4G networks already built in key markets such as the US and China, carriers' investments are set to slump by 7 per cent this year and a further 5 per cent in 2017, according to Deutsche Bank AG.
Revenue at the networks business fell 8 per cent last quarter, while sales from IP networks and applications rose 1 per cent. Nokia continued to predict "market headwinds" in the wireless networks business for this year, forecasting a decline in network revenue. The adjusted operating margin in the networks business will be above 7 per cent, Nokia forecast.
