Finnish mobile phone manufacturer Nokia released first quarter figures today which, on the whole, remained in line with expectations. The weak performance of the company’s infrastructure business was offset by the continuing strong performance of its handset division.
Net sales were €6,773m, down by 3pc from the first quarter of last year. Pro forma operating profit was €1,187m, down by 8pc. The likelihood of further job losses at the company was not ruled out by CEO Jorma Ollila (pictured).
The decline in sales was blamed in the continuing weakness of the company’s infrastructure business. Mobile phone sales rose by 1pc year on year, within previously stated guidance, reaching €5.5bn. Strong sales growth in Europe was virtually offset by somewhat slower sales in Asia Pacific and substantially weaker sales in the Americas. The company stated that its focus on operational efficiency continued to drive profitability at Nokia Mobile Phones, with pro forma operating profit in the first quarter rising 9pc year on year to €1.3bn and mobile phone margins continuing at ‘very healthy levels’ of 23.9pc.
In Nokia Networks, first-quarter sales declined by 15pc year on year to €1.2bn, reflecting lower sales in Europe and Asia Pacific only slightly offset by increased sales in the US. Nokia Networks operating profit decreased substantially to a pro forma operating loss of €127m, reflecting lower sales volumes and continuing high costs related to the first-phase implementation of 3G technologies. Against this backdrop, Nokia stated that it is taking action to reduce costs and improve profitability. In February, Nokia Networks announced plans to reduce the number of its research and development (R&D) sites globally in a move to align its focus more closely with the current business environment. This will affect approximately 550 jobs. In April, Nokia Networks announced further reductions across all its functions, involving approximately 1,800 employees.
As for the outlook for the second quarter, Nokia stated that second-quarter sales for Nokia Mobile Phones are expected to grow between 4pc and 12pc year on year, and by somewhat less for the group. Strong profitability at Nokia Mobile Phones is expected to continue. Due to the announced actions in Nokia Networks, the company plans to take a charge relating to restructuring and possible impairments in the range of €350m to €400m during the second quarter as part of normal operating expenses, adversely impacting the company’s pro forma and reported operating profit. In connection with these actions, Nokia is assessing R&D projects to consider possible project closures or impairments.
“With this strong performance from our mobile phones, we succeeded in substantially reducing the impact of difficult operating conditions in our network infrastructure business and were able to post solid overall first-quarter results,” said Ollila. “Reducing personnel is always difficult for our whole organisation and particularly for the people directly involved. However, the actions we are taking are necessary in order to build a healthy and viable networks business going forward.”
By Dick O’Brien