At one time, Nokia were the market leader for mobile phone sales across much of the world. Their feature phones combined reasonable specification with an easy to use interface and, perhaps most importantly, great battery life, call clarity and reception. As the world evolved from feature phones into smartphones, Nokia continued to use Symbian OS: an aging platform with many millions of users around the world but in desperate need of an overhaul. Finally, Nokia adopted Microsoft Windows Phone rather than experiment with Android or reinvent the Symbian software. Not many years later, Microsoft bought the Nokia handset manufacturing business in a move that looked at the time like it was ensuring that at least one equipment manufacturer would continue to sell the struggling Windows Phone devices. Nokia continued on as a business with main interests in networking and licencing patents, but was unable to sell many handsets: we have seen their engineers experimenting with a number of Nokia devices over the months. Nokia will be released from the binding agreement preventing them from selling handsets later this year.
Today, the Finnish company has announced quarterly results. The headline figures are that the combined networking equipment business dropped 8% over the year and was below market consensus: the industry expected the new combined business to sell €5.5 billion but sales were weaker at €5.2 billion. There are a couple of themes as to why Nokia’s sales both fell and missed the expectations: one is that Nokia is experiencing a slowdown in China, which is having an impact on networking sales. The company expects this trend to continue throughout 2016. Nokia’s networking business hasn’t stood still since the handset manufacturing business was split off: the business bought Alcatel-Lucent last year (although the business sale was not completed until January) and so this set of results included the Alcatel-Lucent numbers. This deal has been something of a theme in the results because another reason why Nokia’s sales slipped is given as because management have been concentrating on integrating the two businesses. Indeed, Nokia are increasing their cost savings as a result of acquiring the Alcatel-Lucent networking business from approximately €900 million to “over €900 million). The company declined to provide any additional guidance.
Despite these weaker sales figures than expected, Nokia’s earnings before interest and taxes jumped to €337 million, higher than the forecasted figure of €270 million. Group operating profits have been buoyed by Nokia’s patent portfolio and finished the period at €345 million. However, what is perhaps most telling is Nokia’s warning that the Chinese carriers are investing less into their network.