Nokia has begun an investigation into “compliance issues” tied to transactions made by the former Alcatel-Lucent business that it acquired in early 2016. That investigation could lead to some unflattering results for the vendor.
“During the course of the ongoing integration process, we have been made aware of certain practices relating to compliance issues at the former Alcatel-Lucent business that have raised concerns,” the vendor noted as part of its exhaustive Form 20-F annual report filed with the Securities and Exchange Commission on March 21. “The resolution of this matter could result in potential criminal or civil penalties, including the possibility of monetary fines, which could have a material adverse effect on our business, brand, reputation, or financial position.”
Details in the initial filing were sparse, but the wording impacted investor sentiment. Nokia’s stock was trading down more than 5 percent early Friday on exceedingly high volumes.
Nokia attempted to moderate concern with a follow up statement that downplayed any potential impact and highlighted its attempt at “transparency.”
“As noted in the annual report, to ensure complete compliance we are now scrutinizing certain transactions in the former Alcatel Lucent business,” the company noted. “Out of an abundance of caution and in the spirit of transparency, Nokia has contacted the relevant regulatory authority regarding this review.”
Nokia’s follow-up statement added that it did not expect the investigation to have a material impact on the company.
“We have seen no evidence that would suggest that criminal penalties would apply in this case, and we believe it is highly likely that any penalties that might apply would be limited and immaterial,” it wrote.
Nokia closed on its $17 billion acquisition of Alcatel-Lucent in early 2016. The move bolstered Nokia’s presence in the network equipment space where it battles against heavyweights Huawei and Ericsson.
However, that battle was challenging last year. Nokia reported mixed full-year 2018 results that included a steep drop in operating income stapled to expectations for a strong second half in 2019 tied to 5G deployments.
“2019 will be better than 2018, and 2020 will be better than 2019,” Nokia CEO Rajeev Suri told financial analysts during the company’s fourth quarter earnings conference call. He referred throughout the call to the “virtuous cycle of investment” that he expects to accompany 5G deployments. He explained that this will have a positive impact for all of Nokia’s businesses, from optical to macro radio, fixed wireless access to cloud core, small cells to IP routing, network agnostic software, and more.