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Nokia (NOK) Shares Sell Off on Networks Division Results

By: , dated April 30th, 2015

Shares of Nokia Corp. (NOK) were trading down -0.54 or -7.21 percent to $6.95 per share in Thursday's premarket after announcing the company had turned a profit for its first quarter. Nevertheless, a decline in the company's network division profits disappointed investors this morning leading to the decline in the stock. Nokia stock closed at $7.49, down -0.18 or -2.35 percent in Wednesday's regular trading session.

Espoo, Finland based Nokia Corp. is a multinational corporation providing wireless network equipment and Internet services which include applications, games, media, music and messaging services. The company was formally the world's second largest smartphone maker after Ericsson until the handset division was sold to Microsoft last September for $7.5 billion. The deal was finalized on April 25th of last year. On April 15th of 2015, Nokia announced its acquisition of French telecom equipment maker , Alcatel-Lucent for 15.6 billion.

Nokia reported a net profit of 177 million or $198 million for the company's first quarter of 2015. This compares to a loss of - 239 million or -$267 million in the same quarter one year ago. Sales for the quarter increased +20 percent to 3.19 billion or $3.57 billion, excluding the effects of currency translation the increase came to +11 percent.

Nokia Networks -- the company's core business since the sale of its mobile phone unit to Microsoft in 2014 -- reported a steep decline in its operating margin, from 7.7 percent to 2.4 percent. The mobile broadband division, which accounts for 52 percent of Nokia Networks sales reported an operating loss for the quarter.

Nokia President and Chief Executive Officer, Rajeev Suri, said in a statement that, "Nokia delivered a 20 per cent increase in net sales and 25 per cent increase in earnings per share in the first quarter. Underlying these results was excellent performance from HERE and Nokia Technologies, while good growth at Nokia Networks was offset by unsatisfactory profitability."

The company's other two units were more profitable. Nokia's licensing division, Nokia Technologies and its mapping and location subsidiary HERE, both accounted for approximately eight percent of sales each. The Technologies division sales doubled to 193 million in the first quarter, while the HERE division sales increased +25 percent to 261 million.

Revenue for the Networks division, which currently accounts for 80 percent of the company's total revenue, increased +15 percent to 2.6 billion, with HERE mapping division reporting operating margins of 4.2 percent, while Nokia Technologies operating margin was 72.2 percent.

Nokia announced a deal to acquire French telecom equipment maker Alcatel-Lucent (ALU) on April 15th, which would make the company a leading provider of global network technology. CEO Suri described the transaction as a "good deal" and that many investors have given the deal "very strong, good feedback" and that, "We are moving fast on the necessary integration planning, and have already established a structure designed to minimize disruption to our ongoing business".

Nokia said it expects to achieve annual savings of 900 million by the time the two companies join in 2019 with tax reductions in interest expense of 200 million by 2017. Shareholders are indicating that the loss in Nokia Networks could signal further declines in the stock. Nevertheless, some analysts see the stock's decline as a buying opportunity.

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Jay Hawk Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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