By Sven Grundberg
STOCKHOLM-- Nokia Corp. unwrapped a new era Tuesday, naming a
company insider as chief executive officer and pledging to
distribute more than $4 billion to investors from the proceeds of
the sale of its tarnished handset business.
The Finnish company said Rajeev Suri will take the helm of the
143-year-old company, charging him with accelerating another
transformation of a business with a history of reinvention.
Mr. Suri said in an interview that Nokia's cash pile--fattened
by the EUR5.4 billion ($7.5 billion) handset sale to Microsoft
Corp.--puts it a position to consider smaller-size acquisitions to
fill gaps in a product portfolio that now focuses on wireless
networks.
Nokia also released first-quarter earnings Tuesday, five days
after closing the Microsoft deal. The numbers underscored why the
company shed a mobile device business that once dominated the
industry.
Handset sales plummeted sharply in the first quarter, dragging
Nokia's overall financial performance to a net loss of EUR239
million. While modestly smaller than the net loss in the same
period a year earlier, it contrasted the performance turned in by
the rest of the company that doesn't make handsets.
Nokia, without the handset business, swung to a EUR108 million
net profit in the first quarter, compared with a EUR98 million loss
for the non-device operations in the same period last year. Cost
cuts and an unusually large share of high-margin software sales in
Japan helped drive the improvement.
The Microsoft deal was widely applauded by Nokia investors even
before Tuesday's capital distribution and earnings announcements.
The range of smartphones and cheaper "feature phones" has been
losing ground to Apple Inc. and Samsung Electronics Co. for several
years, leading many analysts to assign little or even negative
value to the business.
Shares in Nokia have nearly doubled since the Microsoft deal was
announced in September. On Tuesday, the stock traded hands at
EUR5.50, up 7.1% from the prior session.
Nokia will distribute EUR3 billion ($4.16 billion), representing
more than half of the Microsoft proceeds, to investors. Nokia
suspended its dividend last year as it scrambled to conserve
cash.
The payout includes an EUR800 million dividend for 2013 and 2014
and a separate one-time dividend of 26 euro cents a share, or about
EUR1 billion. Nokia is also initiating a EUR1.25 billion
share-repurchase program.
"I think this cash distribution leaves us with enough financial
resources," Mr. Suri said.
Nokia will further bolster the balance sheet by shaving EUR2
billion interest-bearing debt by 2016. Ultimately, Nokia aims to
restore an investment grade rating.
Mr. Suri, 46, comes to the job unsaddled by many of the
headaches that dogged Stephen Elop, the Canadian-born executive who
ran the company from 2010 until the handset business was sold in
September.
Mr. Elop oversaw a dramatic downsizing of the handset business,
and his tenure was defined by cost cuts, job reductions and a
complete overhaul of a company that was in a tailspin when he
joined from Microsoft. While Mr. Elop took steps to remake the
mobile devices unit, volumes continued to shrink.
Risto Siilasmaa, Nokia's chairman, has served as interim CEO of
Nokia since last September. Mr. Elop, meanwhile, continued to steer
the handset business during the Microsoft transition and is now
once again employed by the U.S. software maker.
During the first three months of 2014, Nokia's devices sales
dropped 30% to 1.92 billion euros while the unit's operating loss
widened to EUR326 million, from a EUR73 million loss a year ago,
indicating Mr. Elop and Microsoft needs to take radical steps to
fix it.
Mr. Suri--an electronics and telecom engineer who has been
employed by Nokia for the past two decades--has headed Nokia's
mobile network unit since 2009. The Indian-born executive is often
credited with the successful turnaround of Nokia's mobile-network
arm, Nokia Solutions and Networks.
Long known as Nokia Siemens Networks, the unit had once
struggled to compete with Ericsson and Huawei Technologies Co.,
partially because it had been plagued with overcapacity and
obstacles associated with the complicated merger with Siemens's
network unit in 2006.
In 2011 Mr. Suri embarked on a plan to significantly trim the
network business, cutting a quarter of its total staff and exiting
several business areas. Siemens exited the partnership in 2013,
shortly after it returned the operation to profitability, and Mr.
Suri must now oversee its return to growth.
The earnings report indicated the network business, accounting
for the vast majority of the new Nokia's revenue, has room for
improvement. The networks business improved in the first quarter,
but posted a 17% sales decline on the year.
Some of the decline was attributed to restructuring efforts, but
lower sales of services also contributed to the decline.
"I expect growth to return for the network business in the
second half of this year," Mr. Suri said.
Write to Sven Grundberg at sven.grundberg@wsj.com
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