Nokia Corporation Reports Earnings, Warns of Trouble in China

Mobile communications company Nokia (NYSE:NOK) reported its fourth quarter results before the market open on Thursday, Feb. 11. The company combined operations with Alcatel-Lucent (UNKNOWN:ALU.DL) in January, and it expects to achieve 900 million euros of annual synergies by the end of 2018. Here's what investors need to know about Nokia's earnings report.

Results: the raw numbers

Source: Nokia Q4 2015 earnings report

What happened with Nokia this quarter?
Nokia's fourth quarter results come as the company attempts to officially complete its acquisition of Alcatel-Lucent:

• Nokia Networks, the company's telecommunications infrastructure business, suffered a 5% year-over-year sales decline during the quarter. On a constant-currency basis, sales slumped 12%.
• Within the networks business, mobile broadband revenue fell 2% year-over-year, while global services revenue was down 6%.
• Nokia Technologies, the company's licensing and digital media business, enjoyed a 170% year-over-year rise in sales off of a small base. During the quarter, this segment accounted for 11.2% of total revenue.
• Nokia now holds 91.25% of Alcatel-Lucent shares after a reopened public-exchange offer. The company needs 95% in order for the remaining Alcatel-Lucent shares to be delisted from the Paris stock exchange. Nokia and Alcatel are, however, operating as a combined company.
• The company did not provide sales guidance due to the buyout and will, instead, wait until its first quarter report to provide an annual outlook.

What management had to say
Nokia CEO Rajeev Suri pointed to the progress the company has made completing the acquisition of Alcatel-Lucent:

I was particularly pleased with our progress toward completing the Alcatel-Lucent transaction in the fourth quarter, culminating with the start of combined operations in early January. Our work as a combined company has gotten off to a strong start. Teams are preparing joint bids, we are working closely with our customers to ensure we can make fast and effective decisions about overlapping areas of our portfolio, and we are on target to deliver on our previously announced synergy savings.

Suri also talked about how the current macroeconomic environment will affect Nokia's business going forward, particularly in China:

While the competitive environment in Networks remained generally stable in the fourth quarter, we do expect some market headwinds in 2016 as 4G/LTE rollouts in China and some other markets start to slow. The first quarter, in particular, looks quite challenging as customers assess their CAPEX plans in light of increasing macro-economic uncertainty. In this environment, we will continue our sharp focus on operational and commercial discipline, ensure we deliver synergies as quickly as possible, and focus our energy on targeting the growth segments within the overall telecom market.

Looking forward
With Nokia and Alcatel-Lucent now operating as a combined company, despite Alcatel shares still publicly trading, the company can set its sights on achieving the 900 million euros operating cost synergies that it hopes to implement by 2018. These cost cuts will include the streamlining of overlapping products and services, the rationalization of regional and sales organizations, and procurement efficiencies.

Without any guidance, and with infrastructure sales in China expected to slow this year, investors will need to wait until Nokia's first quarter report in order to get the full picture.