Nokia to return cash as profit beats estimates

HELSINKI/PARIS: Nokia Oyj, the world’s No. 3 network equipment maker, yesterday reported stronger-than-expected profit as growth in China offset weaker demand in North America and Europe, and announced a new plan to return money to shareholders.

The Finnish company also said it was on track to complete its proposed €15.6 billion ($17 billion) Alcatel-Lucent SA takeover in the first quarter of next year after securing regulatory approvals, and brought forward its €900 million cost-saving target for that deal by a year to 2018.

The tie-up will vault the new company into a stronger position to compete with Sweden’s Ericsson AB and low-cost Chinese player Huawei Technologies Co, in a market for telecom network gear that has little growth and tough competition pressing down prices.

Nokia also said it would return excess capital following its divestments of the once-dominant phone business, as well as maps unit HERE, and promised to distribute €4 billion to shareholders in coming years through dividends and share buybacks.

“There was talk something like this could take place in connection with the Alcatel deal, but the scale of this programme is massive,” said Pohjola Bank analyst Hannu Rauhala.

Analysts had been wary about Nokia’s earnings after Ericsson posted disappointing results, citing slowing demand in China.

But Nokia’s third-quarter operating profit at the network unit came in at €391 million, or 13.6% of sales, significantly above an average forecast for a profit of €297 million and a margin of 10.2%, according to a Reuters poll.

“It seems China has not had a such a negative effect on Nokia as it did on Ericsson. But this could be just due to timing, with Ericsson’s projects with Chinese operators coming to an end while Nokia’s continue,” Rauhala said.

Nokia also lifted its full-year profitability forecast for the networks unit.

It said the operating profit margin would be around or slightly below the high end of its long-term target range of 8-11%, against its earlier forecast of a margin around the midpoint of that range.

Alcatel-Lucent showed progress on profitability, helped by cost cuts and sales on track at the networking division, which makes products that help telecom operators carry data traffic.

Adjusted operating income rose to €212 million for a margin of 6.2%, versus 5.2% a year ago.