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Nokia Report Strong Networks Profit, Cautions For 2016

February 11, 2016 - Written By David Steele

Nokia were bought by Microsoft for the Lumia branding and expertise, and perhaps so that at least one equipment manufacturer continued to sell Windows Phone devices. As part of the deal, Nokia were banned from selling own-branded handsets for eighteen months although we have seen a limited number of prototype or not-to-be-sold devices appearing over the months. Nokia have made it perfectly clear that after this eighteen month hiatus, they would be back in the business of selling smartphones and similar products into the consumer market. Meanwhile, Nokia still have other businesses to rely on: most notably the networking side of things. This division has just reported their profits and the results are better than expected. However, along with these results, Nokia has cautioned that they do not expect this higher profit margin to continue going into 2016. Nokia’s networking business amounts to 90% of its sales, recorded a fourth quarter 2015 profit margin of 14.6%, which compared with 14.0% for the same period in 2014. Investment analysts’ consensus of the margin was notable lower at 13.8%. However, catch-up patent payments from Samsung to Nokia boosted profits for the quarter to €734, up some 46% compared with last year.

Nokia’s figures were boosted by respectable numbers from Alcatel-Lucent, the telecommunications business absorbed into Nokia during 2015, which reported strong sales in 2015 especially from its software division. However, the main reason for Nokia’s strong results is because of higher than expected expenditure and investment by carriers into their mobile networks. One of Nokia’s key markets is China, and the Chinese carriers have been deploying new LTE networking technology at a rapid rate. Nokia’s note of caution is that this will not continue, which stands to reason. If a given carrier has a plan to install 20,000 masts over a two year period, and manages to deploy 15,000 in the first year, this leaves far fewer to be deployed in the second year. If the Chinese carriers have accelerated their roll out of LTE networking, in 2015 it would be likely that this side of the business will decelerate during 2016.

For 2016, Nokia have already stated that the networking market is intensely competitive between Nokia, Ericsson and Huawei as the major players but with these results, simply said that the outlook was weak. We will have to wait for the first quarter 2016 results are issues for a more in-depth look at the business projections for the rest of the year. It will be interesting to see how much energy and effort Nokia will be putting into their smartphone business later in the year and how much of a distraction this could be for their networking divisions.