Nokia Oyj expects lower profit margins for network-equipment division

Nokia Oyj forecast diminishing profit margins for its network-equipment division, which indicate that the company is likely to sacrifice its earnings in an attempt to revive sales. At the same time, the company is trying ti rebuild itself after selling its phone unit to Microsoft Corp.

Nokia Oyj announced that its network units operating profit for this quarter, excluding some costs, is expected to be 1% to 9 % of sales. The same margin was 11.2% in the fourth quarter of 2013. One of the analysts working for Nordea Bank AB – Sami Sarkamies – had forecast a 7.6% network unit profit of the company. Mr. Sarkamies said: “The big question is, how do they plan to grow NSNs margins from the first quarter while aggressively going after sales.”

The company is becoming more focused on the Nokia Solutions and Networks unit after the phone-devision sale is to be finalized, because it is now trying to increase its revenue as carriers cut their costs. Nokia also needs to face some larger competitors such as Huawei Technologies Co. and Ericsson AB for network contracts.

Nokia Oyj revealed that the full-year profit margin of the network division will be “toward the higher end” of a 5-to-10% range. The company also emphasized on its efforts to drive sales growth and “competitive industry dynamics”. More than 21,000 jobs were cut at the network unit, which the company acquired from Siemens AG last year. Other assets has also been sold in order to increase profitability.

The four-quarter sales at NSN decreased by 22% and reached 3.1 billion Euro (4.2 billion dollars). The operating profit of the unit, excluding some items, decreased to 349 million Euro, which is 11.2% of sales, compared to a profit of 576 million Euro in 2012. Its net loss was 25 million Euro, compared with a profit estimated to 193 million Euro in 2012. The sales fell to 3.48 billion Euro, which is a 21% decrease. These numbers are said to exclude the mobile-phone unit.

Currently, the Nokias value is closely bound to NSN. At the end of the quarter, the company had 9 billion Euro in gross cash and is also expected to receive 3.44 billion Euro as part of the Microsoft deal, which is said by the both companies to be finalized until the end of the first quarter of 2014.

According to Bloomberg, the current share price of Nokia Oyj is 3.06% down, and its one-year return rate is 58.83% up.