Nokia raises merger savings target as sales trail estimates

Bloomberg

Nokia Oyj Chief Executive Officer Rajeev Suri raised the target for cost savings from the acquisition of Alcatel-Lucent SA as he tries to support earnings after second-quarter sales trailed analysts’ estimates.
Sales dropped 11 percent on a pro forma basis to 5.68 billion euros ($6.33 billion), compared with an average analyst estimate of 5.87 billion euros. Adjusted earnings were 3 cents a share, Nokia said on Thursday. That matched the average estimate.
Nokia faces intense competition from Ericsson AB and Huawei Technologies Co. in a market for wireless-network equipment that’s set to shrink 9 percent this year, according to Deutsche Bank AG. Nokia spent about $18 billion for Alcatel to expand beyond mobile infrastructure and to wring cost savings out of the combined operation.
Nokia said savings from the merger are set to reach 1.2 billion euros in 2018. In May, the company had said the savings would top 900 million euros. The Finnish company is said to be eliminating 10,000 to 15,000 positions from the combined staff of 104,000, reducing overlapping products and positions.
“As our successful integration work continues and as we get increased granular visibility into the business, our confidence in our ability to deliver cost savings also increases,” Suri said in a statement. “The decline of our topline remains a concern, and reflects challenging market conditions.”

SHARE DECLINE
Shares of Nokia have lost about 25 percent this year amid investor skepticism the combination will help revive earnings growth. They were little changed at 4.96 euros on Wednesday in Helsinki.
Second-quarter operating profit in the networks division, Nokia’s largest business, shrank 39 percent to 312 million euros, hurt by a customer in Latin America “undergoing judicial recovery.” Nokia also had about 600 million euros of restructuring charges in the quarter related to the Alcatel takeover.
For the third quarter, Nokia predicted a “slight sequential improvement” in sales and operating margin in the networks division. The fourth quarter should see “significant improvement” compared with the third, the company said.
Demand for network equipment is falling because phone carriers in key markets such as the U.S. have largely built the fourth-generation networks that allow smartphone users to stream video and audio more quickly. Meanwhile, demand for the next generation of networks, dubbed 5G, is yet to pick up because the technology isn’t ready.

ERICSSON CEO OUSTER
After this year’s decline, the wireless-gear market is set to drop another 4 percent in 2017, according to Deutsche Bank. Ericsson in neighboring Sweden ousted its CEO last month and plans to accelerate cost cuts after reporting four straight quarters of disappointing revenue and profit.
Nokia continued to forecast a decline in network revenue for 2016. The adjusted operating margin in the networks business will be 7 percent to 9 percent, Nokia predicted.