'Nokia sold its mobile handset business to Microsoft last year in order to focus on supplying telecoms network equipment. However, the group has been forced to offer cheap initial deals to secure long-term contracts for telecoms equipment amid intense competition, in particular in China where operators are rolling out next-generation 4G networks.
Revenues of €3.2bn were up a fifth against the same period last year, ahead of analyst expectations, with sales at its networks business rising 15 per cent in the period.
Lower sales of higher margin software and higher research and development costs also reduced profits in the first quarter.
Rajeev Suri, chief executive of Nokia, described the fall in profitability as “unsatisfactory”.
“We see some of this easing in the second half of the year,” said Mr Suri, pointing to the diminishing effect of lower-margin “strategic entry” deals.
“China in particular has been particularly aggressive on LTE [4G],” he added. “In the longer term, it pays off.”'
Yes, they do have some leverage, don't they.
The great thing about the devices business is that it will be predictable. Low cost and low risk since manufacturing, sales and all the capital intensive stuff is someone else's responsibility. It's just the design, the name and the royalties. The only risk is whether Nokia makes a little or a lot or somewhere in between, but it's hard to see how they can lose money.
I suppose if they really tried, and say, put a shed load of research into handsets which then completely bombed and ruined their name, they could lose, but it's pretty unlikely (touch wood).
That sort of arrangement makes sense to me too. Why one party to give the cheque though? Why couldn't all of the interested parties pay a lump sum for the business and then leave it to stand alone? They carry on paying for individual licenses but they have paid to make sure it will continue to serve them and won't fall into the hands of a rival.
Here we are, the post was by Rskrwrd and the link s/he posted was:
"Thus far, Cisco's largest customers are dazed and confused.
If you search for "Cisco's largest customers are dazed and confused" you get a whole lot of stuff that makes Cisco look bad and others, including Alu, look good. This is to my untutored eye. It looked very interesting to me.
There was an interesting post from one of our recently arrived friends from the Alu board (I think) that was about how bad the Cisco virtual stuff is going down. Apparently lots of their customers are frustrated and confused. There's an article about it. I'll see if I can find it. I think Cisco might be vulnerable. They charge a lot and although John Chambers says they are way ahead of the field, that doesn't entirely ring true.
Great information, Joshua. I like this: 'The liquidity position of the combined Nokia and Alcatel-Lucent is very solid.' The bottom line says there's no need to panic. We can just sit back, assess and make our choices.
I've found the transcript and Suri said, "Nokia technologies will not be disturbed, distracted, or touched, as such, by this acquisition."
In the merger CC Suri and Timo were quite tight lipped and terse about what they would do on the IP front with Alu's patents. Instead they said very clearly that they would continue to work hard on Nokia's patent licensing as per the current plan and implied or stated that nothing would disturb that. Why would they respond like that? Maybe to avoid muddying the waters in what is considered too valuable to mess about with? Did they have Samsung in mind when they said this and maybe Apple? If I remember right the questioner mentioned Apple and its attempts to reduce its payments. Maybe, also it was because Alu's patents are not so valuable right now. It struck me because they could have responded with a vague, it's too early to make pronouncements on this but they chose to make their point in fairly definite language.
"We continue on both sides to be ambitious and to maintain the momentum of both companies which is very good and very strong for both of us..."
Suggests a good quarter right now, which helps confirm what some of the Alu shareholders that have visited have been saying.
... reiterated its long-term target of achieving an investment grade rating. KEY ASSUMPTIONS - No deterioration in Alcatel-Lucent's performance prior to closing. The company continues to achieve its EUR300m cost saving target from the Shift programme in 2015. - Nokia Networks Division to maintain operating margin above 10% from 2015. - Integration costs of EUR900m, with 50% incurred in 2016 and 50% in 2017 yielding cost savings of EUR600m by 2019 (two-thirds of management target of EUR900m). - Full conversion of Nokia and Alcatel-Lucent's convertible bonds. - Suspension of the share repurchase programme and continuation of a modest dividend policy. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating action include: - No significant regulatory remedies that would affect the operational profile and cost reduction potential of the combined entity. - Evidence that the integration programme with Acatel-Lucent is on track, along with no deterioration in Alcatel-Lucent's performance and cost-saving targets. - A conservative financial structure post acquisition with sustained net cash in the multiple billion range. - Non-IFRS EBIT margins at the group level consistently in the mid-single digit range or above, subject to healthy revenue and cash flow visibility. - Modest positive FCF (post dividend). Negative: Future developments that could lead to negative rating action include: - A deterioration in operating performance at either at Nokia or Alcatel-Lucent and/or sustained delays or increase in cost of the integration programme. - Low single digit group (non IFRS) EBIT margin. - Consistently neutral pre-dividend FCF. - Declining net cash position driven by negative cash flows.