Nokia Corp (ADR) (NYSE:NOK) has warned that its mobile network equipment sales will continue to drop as customers hold back on new orders. The remarks come as the Finish Company delivers first quarter earnings that fell short of analysts’ estimates. Sluggish mobile network sales all but made it impossible for the company to topple the Street estimates.
Sluggish Mobile Network Business
Nokia delivered a net loss of €513 million for the first three months of the year compared to a profit of €177 million posted last year. Excluding the costs of the Alcatel Lucent transaction, net profit stood at €139 million.
First quarter sales were down by 8% to €5.18 billion against consensus estimates of €5.51 billion. North America, which is Nokia Corp (ADR) (NYSE:NOK)’s biggest market, registered a 17% drop in sales in the quarter. Sales in the Middle East were down by 6% with Asia Pacific and China recording a 5% and 6% drop as well. The company says it expects its full year network sales and operating margin to fall by more than 7%.
Chief Financial Officer, Timo Ihamuotila has attributed the sluggish mobile network sales to customers holding back, awaiting to see the impact of the new combined roadmap. He has also however downplayed suggestions that they lost a major customer in the quarter.
The first three months of the year marked the first full quarter on the integration of Alcatel business that Nokia Corp (ADR) (NYSE:NOK) acquired for €15.6 billion. Unified results came out positive showing that the Franco-American business is helping offset weakness in the Finish Company’s slowing network business.
Cost Saving Push
Impressed by the Alcatel business performance, Nokia has since upped its cost-cutting target to over €900 million. Initially, it targeted ‘approximately’ €900 million in cost savings. The company has already started to cut cost in some areas of operations having confirmed plans to slash 1,400 jobs in Germany and an additional 1,300 in Finland.
Reductions will mostly target areas where Nokia Corp (ADR) (NYSE:NOK) operations overlap those of Alcatel-Lucent. Consolidating real estate footprint is part of the cost-saving push that has already resulted in the closure of some stores with plans to close 30 more. Buoyed by the cost-saving drive, analysts expect the company’s profit margin to improve by 11.6% by 2018.