Nokia's cautious forecast on profit margins disappoints investors

  • Updated: Nov 15, 2014 13:13 IST

Nokia predicted on Friday a return to growth for sales in its core network equipment and services business next year and lifted its long-term profit margin target after meeting strong demand for 4G mobile broadband networks this year.

However, the share price fell by nearly 6% to 6.28 euros as analysts said the margin target could have been more ambitious, mindful that the company was expecting to beat the new target in 2014.

Nokia, which ranks third in the global network-equipment market after Ericsson and Huawei Technologies [HWT.UL], said it was now aiming for a long-term operating margin of between 8 and 11%, up from its previous target of 5 to 10%.

Analysts had expected the move after Nokia last month reported a margin of 11.4 percent for the first nine months of 2014 and forecast a margin of "slightly above 11%" for the full year on the back of large network roll-outs in North America and China and a successful cost-cutting campaign.

"The margin range in networks should be seen as a bit bearish by some as the upper end already is priced into the estimates," said Inderes analyst Mikael Rautanen. Chief executive Rajeev Suri said on Friday at the group's first capital markets day for five years that after four years of retrenchment Nokia had shown in the third quarter that it could increase both sales and profits.

"Now we are looking to increase our addressable market and move smartly into new areas," he said, mentioning a range of market prospects including antennas, small cells and software-defined networks.

Market leader Ericsson announced plans on Thursday to cut its costs to help it cope with weaker growth prospects in the overall market.. Nokia sold its struggling handset business in April to Microsoft in a 5.6 billion-euro ($7 billion) deal that left it to concentrate on developing the networks business.

Looking to next year's performance, Suri said on Friday the company expects an increase in sales in the core business and an operating margin in line with the new long-term target.

Chief finance officer Timo Ihamuotila said if market dynamics did not change, the margin would be towards the higher end in 2015. (1 US dollar = 0.8042 euros)

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