Nokia reports €613m loss after Alcatel-Lucent acquisition

Nokia has reported its financial results for the first quarter of 2016, announcing a loss of €613 million, a reversal from last year's €169 million quarterly profit.

The network technology giant's non-IFRS profit -- excluding the costs related to its €15.6 billion acquisition of Alcatel-Lucent, goodwill impairment charges, intangible asset amortisation, purchase price-related items, restructuring costs, and other items -- was €139 million for January to March.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) were €462 million for Nokia Networks -- €325 million from Ultra Broadband Networks and €137 million from IP Networks and Applications -- and €108 million for Nokia Technologies, while Group Common and Other saw an €87 million loss. The total Nokia EBITDA was a €304 million loss, taking into account non-IFRS exclusions.

Net cash and other liquid assets stood at €8.25 billion as of the end of March, up 76 percent from last year's €4.67 billion.

Nokia's non-IFRS operating profit for the quarter was €345 million, up 25 percent from last year's €276 million, while non-IFRS net sales were €5.6 billion, down 9 percent from last year's €6.13 billion.

Nokia pointed out that its Q1 results are not directly comparable to last year's Q1 results, however, due to the addition of Alcatel-Lucent on a consolidated basis. Overall, the company welcomed the results.

"I am pleased that we were able to deliver solid profitability in what is typically a seasonally weak quarter, and at a time when the risk of integration-related disruption was high," said Nokia CEO Rajeev Suri.

"While our revenue decline was disappointing, the shortfall was largely driven by Mobile Networks, where the challenging environment is not a surprise."

Rajeev also specified future plans for the Nokia-Alcatel consolidation.

"We already have agreed transition plans that cover the most pressing areas of portfolio overlap with most of our top customers; have begun the process of reducing overlapping personnel, including initial reductions in the United States and several other countries; started to consolidate our real estate footprint, with several sites already closed and 30 more scheduled for the current quarter; and completed 40 projects with suppliers to drive procurement savings, with 200 more projects currently underway and plans for hundreds of additional projects to be launched largely over the course of Q2 2016," Rajeev said.

Nokia's Networks business contributed €337 million in non-IFRS operating profit -- of which Ultra Broadband Networks added €234 million and IP Networks and Applications added €103 million -- up 61 percent from last year's €209 million. It also made €5.18 billion in net sales, down 8 percent from €5.66 billion; spent €951 million on research and development (R&D), 7 percent less than last year's €1.02 billion; and saw €677 million in selling, general, and administrative expenses, down 4 percent from €705 million.

"The year-on-year decrease in Nokia's Networks business net sales in the first quarter 2016 was primarily due to lower net sales in Ultra Broadband Networks," the company explained.

In the Ultra Broadband Networks category, mobile networks experienced a 15 percent decline in non-IFRS net sales, from €3.69 billion down to €3.12 billion, while fixed networks declined by 12 percent, from €541 million to €613 million.

Net sales by region for Networks were €1.58 billion in North America, down by 17 percent from €1.9 billion; €1.2 billion in Europe, down by 3 percent from €1.24 billion; €1.09 billion in APAC, down 6 percent from €1.16 billion; €572 million in Greater China, down 5 percent from €604 million; €393 million in the Middle East and Africa, down 11 percent from €443 million; and €340 million in Latin America, up 6 percent from €320 million.

Nokia Technologies contributed €106 million in non-IFRS operating profit, down 40 percent from last year's €178 million. It made €198 million in net sales, down 27 percent from €273 million; spent €58 million on R&D, down 19 percent from €72 million; and saw €32 million in selling, general, and administrative expenses, up 52 percent from €21 million.

"The year-on-year decrease in Nokia Technologies net sales in the first quarter 2016 was primarily due to the absence of non-recurring adjustments to accrued net sales from existing agreements, revenue share related to previously divested IPR, and IPR divested in the first quarter 2015, all of which benefitted the first quarter 2015, as well as lower licensing income from certain existing licensees that experienced decreases in handset sales," the company said in its report.

"This was partially offset by higher intellectual property licensing income from existing and new licensees."

Finally, Nokia's Group Common and Other made a €99 million non-IFRS operating loss, slightly less than last year's €111 million loss, on €236 million in net sales, up 16 percent from €203 million. Nokia attributed the rise in net sales to Alcatel Submarine Networks, though it said this had been partially offset by its Radio Frequency Systems.

It also spent €73 million on R&D, up 4 percent from €70 million; and €55 million on selling, general, and administrative expenses, up 15 percent from €48 million.

Nokia also used its results to address the recently revealed wave of redundancies, saying the reduction in headcount is to attain business "synergy" globally.

"The headcount reductions are expected to take place between now and the end of 2018, consistent with Nokia's synergy target timeline," the results report said.

"Reductions will come largely in areas where there are overlaps ... As part of the program, Nokia also continues to target savings in real estate, services, procurement, supply chain, and manufacturing."

Nokia said in April that it is hoping to cut €900 million in costs by 2018, which will partially be achieved through the redundancies. The company has not revealed how many employees will lose their jobs, but Reuters reported that 1,400 staff members will be cut in Germany, 1,300 in Finland, and 400 in France -- though 500 positions in R&D will be created in France.

Nokia's plans to acquire wearable and health-monitoring company Withings for €170 million in cash was also addressed, with the report saying that its 200 employees would come under the Nokia Technologies umbrella, as it would add to Nokia's IoT portfolio.

"With this acquisition, Nokia is strengthening its position in the Internet of Things in a way that leverages the power of the trusted Nokia brand, fits with the Nokia's purpose of expanding the human possibilities of the connected world, and puts Nokia at the heart of a very large addressable market," the report said.

Nokia expects the settlement to close in early Q3.

"I am excited that the team from Withings will be joining Nokia, as part of Nokia Technologies," the chief executive added.

"We have said consistently that digital health is an area of strategic interest to us, and with this acquisition we have an excellent opportunity to expand in what is one of the largest markets in the Internet of Things and build future licensing opportunities."