Nokia Earnings: What Factors Can Impact Results

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Nokia is scheduled to release its Q2 2016 earnings on August 4th, reporting its quarterly results as a combined entity with Alcatel-Lucent for the second time. We believe that Nokia Networks’ organic revenue growth will be weighed down by the slowdown in 3G demand in China and weak telecom spending in Europe, Russia and Brazil. The segment’s revenues had declined by 8% in Q1 on account of the weakness in the wireless infrastructure market, and we may see some similar results this time around as well. However, there can be a turnaround in Nokia Technologies growth in Q2, following a dismal first quarter where sales fell 27% due to certain nonrecurring items, such as adjustments to accrued net sales from existing agreements. The company had mentioned that excluding these items, the segment’s sales would have increased 10% in the second quarter, which indicates that Nokia Technologies’ core business is strong. Nokia made some progress on expanding its digital health and digital media business during the first quarter, which would have had some positive impact on its Technologies segment growth in the second quarter.

On the bottomline front, Nokia’s per share earnings are likely to be down significantly, given that inclusion of Alcatel-Lucent has weighed on the company’s profits. Even in the last quarter (Q1), Nokia’s earnings per share declined by 30% due to the inclusion of Alcatel-Lucent’s relatively less profitable wireless infrastructure segment and loss making Group Common and Other segment.

nokia pre earnings

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To address its woes in China and survive the intense competition from Huawei and ZTE, Nokia recently inked a $1.5 billion framework contract with China Mobile recently, under which the Finnish company will continue to deliver operational support, customer experience management technologies, as well as network for optical transport, IP routing, mobile and fixed line equipment. However, the deal makes more sense from a long term perspective and will have no impact on the upcoming results. Also, the company’s Technologies division appears well equipped for the long run, given the company’s smartphone licensing deal and the recent extension of the Samsung patent portfolio deal. Also, the acquisition of Withings S.A. marks the formation of Nokia’s digital health unit, which is going to complement Nokia Technologies’ revenues going forward.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Nokia
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