Nokia isn't having the best of times recently. After Microsoft sold off what's left of the Finnish company's phone business, the once largest phone manufacturer in the world revealed that its profits for the second quarter of the year have plummeted even more than expected. This is partly because telecom operators are spending significantly less on faster mobile networks nowadays but also due to the fact that Nokia increased its cost-cutting target for its latest acquisition Alcatel-Lucent which already caused decreased profits for the company in the first quarter of the year.
More specifically, Nokia's second-quarter earnings before taxes and interest dropped 49% during Q2 2016, as the company's earnings within the period amounted to $370 million. To put things into context, analysts were forecasting $400 million in profits within this time frame, so Nokia missed that target by almost 8%. As for the cost-cutting target for the merger with the French global telecommunications equipment maker Alcatel-Lucent, Nokia announced that it's now planning on saving more than $1.3 billion in 2018, $300 million more than it was originally planned.
Nokia's representatives stated that weak sales of its mobile networking products are the main reason for this sharp decline in profits as they account for close to four-fifths of the overall network sales decline. Geographically speaking, the latest drop is relatively evenly distributed as Nokia networks division's revenue fell 12% in both of the company's two traditionally strongest regions, North America and Europe. The company's CEO Rajeev Suri stated that Nokia's expecting "slight sequential improvement in both net sales and operating margin" of its networks business in the third quarter of the year but didn't try to predict how slight that improvement will be. Top industry analysts aren't hiding their disappointment with these results, adding that there's no doubt Nokia's stock will fall even further.
The recent $1.73 billion acquisition of Alcatel-Lucent was prompted by Nokia's endeavor to continue competing with Ericsson and Huawei in the next for year until a new cycle of network upgrades begins. As things stand right now, the market has extremely limited growth potential and the Finnish communications company needs all the assets it can get to stay competitive.