Nokia profits give cause for concern over Alcatel-Lucent deal

Nokia’s quarterly operating profit has slipped, giving investors cause for concern over the viability of its acquisition of Alcatel-Lucent

Investors have raised doubts over the viability of Nokia’s €15.6bn acquisition of Alcatel-Lucent following a sudden decline in quarterly operating profit at the Finnish networking supplier.

Nokia struck an agreement to buy Alcatel-Lucent earlier in April, with the intent of creating a European powerhouse around fixed and mobile broadband technology, IP routing, core networking, and cloud apps and services.

However, in its latest set of results, the firm revealed its operating profit dropped by 13% compared with the same quarter a year before to €265m, and by 61% to €85m at its core Nokia Networks business. Net revenues were up by 20% to €3.2bn, of which Nokia Networks contributed €2.7bn.

Nokia said it saw sequential declines in sales of mobile broadband equipment as the LTE market continued to mature, as well as in its services business.

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President and CEO Rajeev Suri said the firm’s profitability was clearly unsatisfactory, but added that he expected some of the negative factors to ease in the second half of 2015.

Despite Suri’s optimism, investors have been dumping Nokia shares in the wake of the announcement, meaning that its share price is now 20% lower than it was when it announced the acquisition of Alcatel-Lucent on 15 April 2015.

Speaking to Reuters, one analyst said the market would be hoping Alcatel-Lucent’s next set of results were similarly bad, or Nokia could risk angry shareholders arguing for more money.

Key investor Odey Asset Management – which owns about 5% of Alcatel-Lucent – has already mobilised against the deal, describing it as “unacceptable” and saying it would not tender its shares.

Suri said: “The strategic logic of this proposed transaction is strong and we believe that it will provide long-term benefits to shareholders of both Nokia and Alcatel-Lucent.

“We are moving fast on the necessary integration planning and have already established a structure designed to minimise disruption to our ongoing business,” he added.

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