Nokia stands firm behind NSN after disastrous €908m writedown

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Nokia stands firm behind NSN after disastrous €908m writedown

By CAROLINE GABRIEL

Published: 16 October, 2009

READ MORE: Nokia Siemens Networks | Ericsson | Nokia

Nokia's third quarter results were, of course, dominated by a shock writedown on its Nokia Siemens infrastructure venture, and negative feeling around NSN was only heightened by the Finnish partner's fairly bullish view of the wireless equipment market in general.

Nokia now expects total wireless industry revenue to drop 5% instead of 10% this year, but it expects worse market share in equipment for NSN. "We continue to support Nokia Siemens Networks actions to improve its performance," said CEO Olli-Pekka Kallasvuo. The firm also wrote down the value from its acquisition of mapping firm Navteq, though this was blamed on the economic situation rather than poor performance by the unit, which is central to Nokia's web services strategy, but for which the Finn greatly overpaid at $8.1bn two years ago.

The €908m writedown on NSN sent Nokia's shares reeling, down by about 13% yesterday after they had rallied somewhat just ahead of the Q3 announcement. The charge pushed Nokia into its first quarterly loss since it started reporting quarter by quarter in 1996. The shock deficit of €913m (compared with profit of €1.1bn a year ago) also reflected the pressure on average selling prices and the contraction of the overall handset market this year. A year ago, just pre-crash, Nokia made a profit of €1.09bn. Sales fell 20% to €9.81bn, worse than analyst consensus forecasts of €9.94bn.

NSN suffered a 21.2% year-on-year fall in net sales to €2.76bn and an operating loss of €1.107bn, compared with an operating loss of €1m in the third quarter of 2008. "The challenging competitive factors and market conditions in the infrastructure and related services business necessitated non-cash impairment charges at Nokia Siemens Networks," said Kallasvuo.

Of course, NSN is operating in a tough business where operators are planning major investments in infrastructure but largely holding off on implementing them on a broad scale (or paying for them) until next year. But there are worrying signs that NSN is underperforming the sector, and all eyes will be on the results of Ericsson and other competitors. Few players are expected to shine, and while Ericsson should have solid results, reflecting its greater ability to withstand price wars, it will be pressurized by the strengthening of the Swedish kroner against the dollar and, because of higher expectations, could disappoint analysts. Still, analysts expect its earnings to improve slightly from the previous quarter, though its margins may be hit by its transition to services (also a factor for NSN and Alcatel-Lucent), since margins tend initially to be lower on services than on equipment sales.

Ericsson said this week that its networks division would need to cut purchasing costs by 50% over the next five years to remain price competitive.