Why Was Nokia Cautious On Next-Quarter Network Sales?

• Nokia Corporation (ADR) NOK reported its fourth quarter financial results, with earnings of €0.15 ($0.17), €0.03 ahead of consensus, on revenue of €3.6 billion ($4.081 billion), €280 million below estimates.
• JPMorgan analyst Rod Hall and his team looked into the results and noted that, while ahead of consensus, guidance for the first quarter was “challenging.”

After analyzing Nokia's results, analysts at JPMorgan pointed out that group sales and EBIT fell short modestly of their expectations, although networks EBIT and margin beat consensus. However, management was cautious on its guidance for network sales in the first quarter, and didn't provide an outlook for the full year – arguing that the Alcatel Lucent acquisition was only closed last month.

Nokia foresees a flattish capex backdrop for the combined addressable market, with a weakening in the wireless RAN market in 2016 – mostly on the back of a slowdown in 4G/LTE rollouts in China and a few other markets.

The company also provided cautious guidance for network sales in the first quarter of fiscal 2016, “as it is indicating that customers are assessing their capex plans given the increasing macro uncertainty.”

On the other hand, management reiterated its view that cost synergies from the Alcatel Lucent purchase should reach €900 million ($1.020 billion) by the end of 2018. Nokia now anticipates €200 million of interest expenses reductions to be achieved in 2016 itself, one year ahead of what was originally planned.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.