Despite a drop in net sales for its fourth quarter and full year 2016, Nokia’s stock is up about 6 percent this morning. Apparently, investors were expecting worse, and they like the operating margin guidance for 2017.
In a prepared statement, Nokia CEO Rajeev Suri said he was “disappointed with our topline development in 2016,” but he expected performance to improve in 2017.
For the Finnish company’s fourth quarter 2016, net sales dropped 13 percent to €6.7 billion ($7.2 billion) compared to €7.7 billion ($8.3 billion) for the same quarter in 2015, reported on a comparable basis given the company’s $17 billion purchase of Alcatel-Lucent.
The Networks business unit, which accounts for the lion’s share of Nokia’s revenue, saw sales decline 14 percent during the quarter. The company said the year-on-year net sales decrease reflected challenging market conditions in the quarter and the difficult comparison against the strong performance by Alcatel-Lucent in Q4 2015.
For the full year 2016, net sales dropped 10 percent to €23.9 billion ($25.8 billion) compared to €26.6 billion ($28.7 billion) for the full year 2015.
Although sales were down, the Network unit’s operating margin for the full-year 2016 was 8.9 percent at the high end of its guidance range of 7 to 9 percent. And for this year, Nokia expects a margin of between 8 to 10 percent.
Alcatel-Lucent’s IP Assets
“2016 was a time of transition for Nokia,” said Suri. “We ended the year having successfully concluded the integration of Alcatel-Lucent faster than anticipated.”
At the start of the year Nokia was focused primarily on mobile networks. It ended the year as a company with a portfolio spanning mobile, fixed, routing, optical, and stand-alone software.
While many in the telecom industry scoffed at Nokia’s purchase of Alcatel-Lucent, the acquisition may help Nokia weather tough times. The Alcatel-Lucent IP assets help diversify Nokia’s portfolio, which traditionally was very heavy on mobile and wireless assets.
Mobile telecom vendors are feeling the pain as customers cut back on 4G deployments while they anticipate, but don’t yet buy equipment for 5G. Ericsson, for instance, recently cut its annual dividend by 73 percent as the company tries to regain its financial footing.