Nokia Margin Forecast Trails Estimates

Nokia predicted a 2017 profit margin for its main business that trailed estimates, disappointing investors who expected cost savings by the Finnish network manufacturer to kick in earlier, according to Bloomberg. The stock fell. The operating profit at its network division is set to be 8 percent to 10 percent of sales next year, the company, which is meeting with investors in Barcelona, said in a statement. Analysts had predicted 10.2 percent on average, according to SME Direkt data.

The forecast signals that the cost savings Chief Executive Officer Rajeev Suri is seeking with the purchase of France’s Alcatel-Lucent may not be boosting earnings as quickly as investors expected. Suri is cutting jobs, combining teams and eliminating overlapping products to increase margins as spending by wireless carriers declines. Sales at the network division next year are set to decline “in line with its primary addressable market,“ Nokia said. The market will decline in the low single digits in 2017, Nokia reiterated.

Wireless carriers are limiting network expenditures after completing the latest investment cycle. Rival Ericsson last week predicted that the market for mobile infrastructure will fall 2 percent to 6 percent next year, following a decline of as much as 15 percent in 2016. With intense competition from China’s Huawei adding to the pressure of a shrinking wireless market, Nokia broadened its portfolio by buying Alcatel-Lucent for about $18 billion. Demand for broadband networks is increasing as service providers expand coverage and capacity to cope with the popularity of services such Netflix.

Since the Alcatel-Lucent tie-up was finalized this year, Nokia has focused on squeezing out expenses, raising the annual cost-savings target to 1.2 billion euros by 2018 from 900 million euros by 2019 when the acquisition was announced. Suri said last month Nokia is prepared to take more measures if needed.

Last month, Nokia said it is set to reach its network operating margin forecast of 7 percent to 9 percent for the full year 2016. The network unit had an operating margin of 8.1 percent in the third quarter. In the long term, the company aims to outpace the market’s growth and targets a networks operating margin of 10 percent to 15 percent. Nokia said it will start buying back as much as 1 billion euros worth of stock as part of previously announced plans. The company plans to propose a dividend of 17 cents a share for 2016.