Nokia (NOK) Misses Q1 EPS by 1c; Commences Headcount Reduction, Plans to Acquire Withings

Nokia (NYSE: NOK) reported Q1 EPS of EUR0.03, EUR0.01 worse than the analyst estimate of EUR0.04. Revenue for the quarter came in at EUR5.6 billion versus the consensus estimate of EUR6.24 billion.

CEO Rejeev Suri commented:

Nokia’s first quarter results demonstrate the strategic value of our combination with Alcatel-Lucent.

I am pleased that we were able to deliver solid profitability in what is typically a seasonally weak quarter and at a time when the risk of integration-related disruption was high. While our revenue decline was disappointing, the shortfall was largely driven by Mobile Networks, where the challenging environment is not a surprise. We noted in our Q4 2015 earnings release that we expected some market headwinds in 2016 in the wireless sector and we continue to hold that view today.

Based on our current assessment, we expect a full year 2016 non-IFRS operating margin above 7% in the Networks business. When looking at the first half of the year, we do not expect typical seasonal patterns to occur given likely market conditions in the second quarter and our ongoing integration of Alcatel-Lucent.

While integrations of the scale of Alcatel-Lucent are complex and take time, we are now sufficiently confident in our progress that we are targeting synergies that are both more than and faster than our original plan. We already have agreed transition plans that cover the most pressing areas of portfolio overlap with most of our top customers; have begun the process of reducing over-lapping personnel including initial reductions in the United States and several other countries; started to consolidate our real estate footprint with several sites already closed and thirty more scheduled for the current quarter; and completed 40 projects with suppliers to drive procurement savings, with 200 more projects currently underway and plans for hundreds of additional projects to be launched largely over the course of Q2 2016.

I am also pleased that we continue to see strong support from our customers, including those from the former Alcatel-Lucent. We are focused on capitalizing on these opportunities through strengthening our sales execution, as well as bringing unique innovation rapidly to market, such as our recently announced 5G-ready AirScale radio access family of products.

On a final note, I am excited that the team from Withings will be joining Nokia, as part of Nokia Technologies. We have said consistently that digital health is an area of strategic interest to us, and with this acquisition we have an excellent opportunity to expand in what is one of the largest markets in the Internet of Things and build future licensing opportunities.

Nokia launches headcount reductions as part of global synergy and transformation program

Nokia announced that it has started actions to reduce company personnel globally as part of its synergy and transformation program.

The headcount reductions are expected to take place between now and the end of 2018, consistent with Nokia’s synergy target timeline. Reductions will come largely in areas where there are overlaps, as Nokia outlined on October 29, 2015. At the same time, Nokia is taking steps to adapt to challenging market conditions and to shift resources to future-oriented technologies such as 5G, the Cloud and the Internet of Things. As part of the program, Nokia also continues to target savings in real estate, services, procurement, supply chain and manufacturing.

Nokia plans to acquire Withings to accelerate entry into Digital Health

Nokia announced plans to acquire Withings S.A. (“Withings”), a pioneer and leader in the connected health revolution with a family of award-winning digital health products and services to help people all over the world lead healthier, happier and more productive lives. Withings has approximately 200 employees and will be part of our Nokia Technologies business.

With this acquisition, Nokia is strengthening its position in the Internet of Things in a way that leverages the power of the trusted Nokia brand, fits with the Nokia’s purpose of expanding the human possibilities of the connected world, and puts Nokia at the heart of a very large addressable market.

The planned transaction values Withings at EUR 170 million, would be settled in cash and is expected to close in early Q3 2016 subject to regulatory approvals and customary closing conditions.

For earnings history and earnings-related data on Nokia (NOK) click here.

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