Nokia Boosts Profitability Goal as Suri’s Revival Progresses

By Adam Ewing  

Nokia Oyj (NOK1V) boosted its long-term profitability target as Chief Executive Officer Rajeev Suri makes progress with an effort to rebuild the Finnish company around wireless-network equipment.
The adjusted operating profit at the networks unit, which makes up about 90 percent of Nokia’s revenue, is targeted at 8 percent to 11 percent of sales, the Espoo, Finland-based company said today. Analysts on average predict 10.8 percent for 2015 and 10.6 percent for 2016, according to Nordea Bank AB.
Suri, who took over in May after Nokia sold its money-losing mobile-phone unit to Microsoft Corp. for about $7.5 billion, is seeking to match investor expectations for rising earnings as demand for network gear recovers. He started reviving profit with job cuts in his previous role as
head of the network unit and is focusing on more profitable contracts amid competition from Ericsson AB (ERICB) and Huawei Technologies Co.
Nokia’s previous margin goal for long term -- a period it doesn’t define -- was 5 percent to 10 percent, though the company had already projected that measure to be slightly above 11 percent for 2014. For next year, Nokia predicted the network division’s margin will meet the new target, signaling it may decline from this year.

Photographer: Henrik Kettunen/Bloomberg

Rajeev Suri, Chief Executive Officer of Nokia Oyj.

“The margin range in networks should be seen as a bit bearish by some as the upper end already is priced into the estimates,” Sami Sarkamies, an analyst at Nordea in Helsinki, said in a note to clients.
Nokia shares fell 1.7 percent to 6.53 euros at 11:45 a.m. in Helsinki, giving the company a market value of 24.5 billion euros ($30.5 billion). The stock had gained about 25 percent in the past six months.

Eliminating Jobs

Revenue at the networks division will expand next year, Nokia forecast today. The company also projected rising sales for its maps and patents divisions for 2015.
Ericsson, the biggest maker of wireless networks, reported an operating margin of 6.7 percent for the latest quarter. The Stockholm-based company said yesterday it plans to cut 9 billion kronor ($1.2 billion) of costs with a program that includes headcount reductions.
Suri eliminated more than 25,000 jobs at the network unit to bring the business back from losses, while focusing on more lucrative network contracts.
Nokia said last month it won a $970 million order from China Mobile Ltd. to provide fourth-generation equipment, software and services through 2015. Sales last quarter got a boost in North America where Nokia benefited from Sprint Corp. building out a 4G network.
Nokia is also counting on its two other businesses to drive sales and lift margins. Its digital-map business provides data to Amazon.com Inc., Microsoft, Yahoo! Inc. and four out of five car-navigation systems. Nokia’s research and development unit, which collects fees for licensing the company’s patents, boosted operating profit 17 percent to 98 million euros last quarter.