Nokia Corp. swung to a net profit in its most recent quarter,
saying it was forging ahead with the proposed €15.6 billion ($17.1
billion) acquisition of rival Alcatel-Lucent SA in a bid to
strengthen its hand in the fiercely competitive market for telecoms
equipment.
The Finnish maker of high-speed wireless networks on Thursday
recorded a net profit of €351 million in the second quarter,
abetted by a stronger dollar and solid software sales. Stripping
out gains from the disposal of its handset business, Nokia had a
net loss of €28 million in the same period a year earlier.
Second quarter revenue from its mainstay networks unit rose 6%
to €2.73 billion but fell 4% excluding currency fluctuations, Nokia
said.
Alcatel-Lucent, which reported its first quarter of positive
free cash flow since the company was created in 2006, narrowed its
losses in the three months to June 30 as it reaped the benefits of
stiff cost-cutting and a shift to higher margin businesses.
Nokia and Alcatel-Lucent shares shot up at the opening of the
Helsinki and Paris bourses on Thursday, and were up 7.7% and 5.5%,
respectively, in late morning trading on the back of the quarterly
results, analysts said.
Once the world's leading supplier of mobile handsets, Nokia is
in the process of reshaping itself into a global provider of
equipment and software to telecoms carriers.
The all-share purchase of Alcatel-Lucent, which recently cleared
antitrust hurdles in Europe and the U.S. but has yet to be approved
by Nokia shareholders, could catapult the company into the same
revenue league as market leaders, Ericsson AB of Sweden and Huawei
Technologies Co. of China.
It could also help the enlarged company battle in what Nokia and
Alcatel-Lucent executives describe as a crushing business
environment, giving them more pricing power to negotiate with big
customers.
"It is as competitive out there as it has ever been," said Jean
Raby, Alcatel-Lucent's chief financial officer. "But the group will
have such a scale and scope that we will be able lead the next
phase," he added.
Thursday's results by both Nokia and Alcatel-Lucent underscore
the challenge facing telecoms equipment suppliers: eking out
growing profit in an environment where big telecommunications
companies in their main markets are spending less.
The prognosis in some of the biggest markets for
telecommunications equipment aren't rosy, as spending on the
rollout of wireless 4G winds down. In North America—where Verizon
Communications Inc. and AT&T Inc. contribute 30% of
Alcatel-Lucent's overall sales—revenue was down 18% year on year in
constant currency for Alcatel-Lucent. In Asia, revenue was down
12%, in part because of the timing of wireless projects in China,
the company said.
In response, Alcatel-Lucent has continued to slash costs and
jobs under its Shift Plan, and has shifted resources to its
higher-margin Internet routing businesses. Revenue there was up 3%
in constant currency in the second quarter to €659 million.
That helped the company beat expectations on operating income,
which rose 29% to €175 million. Gross margins improved 34.8%,
compared with 32.6%
"Next generation technologies now represent more than three
quarters of our revenue," Mr. Raby said. "This improvement is
really about the operational profitability of the group."
Nokia said it hoped to complete the Alcatel-Lucent acquisition
in the first half of next year. Alcatel-Lucent said that Chief
Executive Michel Combes plans to leave the firm on Sept. 1, ahead
of the planned takeover.
The Finnish company said a review of its digital mapping
business, known as Here, was at "an advanced stage," and declined
to comment on reports that Nokia has agreed to sell the unit to a
group of Germany auto makers for slightly over €2.5 billion.
Write to Sam Schechner at sam.schechner@wsj.com and Jens
Hansegard at jens.hansegard@wsj.com
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