Nokia Networks disappointed on profitability in Q1 2015, as CEO Rajeev Suri (pictured) argued why the €15.6 billion acquisition of rival Alcatel-Lucent should be the Finnish vendor’s next step.
Nokia’s networks unit saw operating profit slump by 61 per cent, although its parent was buoyed by stronger performances from HERE and its technologies unit. Group-level profitability grew from €110 million to €181 million.
Suri used an investor call to update on industry and government reaction to the proposed Alcatel-Lucent deal.
“We have met with many customers and every one has expressed support,” he said, although the merger will reduce supplier numbers. Rather, operators are cheered by the potential emergence of a third global player (alongside Ericsson and Huawei), he said.
However, past mega deals among network vendors have some troubled history – Alcatel Lucent has suffered rocky times of its own. But Suri defended the current bid’s “clarity” (Nokia is buying AlcaLu rather than a merger).
“History does not have to repeat itself,” he stressed.
Turning to quarterly performance, Suri blamed the business mix in the networks unit for disappointing profits. Network (hardware) implementation was greater than software; and more LTE than core network business.
“Growth was not the issue, the issue was profitability,” he said.
Nokia’s net sales grew by 20 per cent to €3.2 billion, spurred by all three units. The networks business saw sales growth of 15 per cent, while the navigation business jumped 25 per cent and Nokia Technologies more than doubled its sales in the quarter.
However, networks only grew sales by five per cent, if the effect of currency movements is stripped out.
Too much divergence in performance between the two companies could raise questions about the terms of the proposed all-share AlcaLu takeover, according to analysts contacted by Reuters.
And the Financial Times reported Alcatel-Lucent’s second largest shareholder – Odey Asset Management – describing Nokia’s offer as “unacceptable”. The investor views the bid as too low, undercutting some of Suri’s positivity about how the deal has been received.