Finnish telecom equipment vendor, Nokia’s second quarter earnings before interest and taxes fell 49% to $370 million, much more than anticipated by analysts. The company, which took over Alcatel Lucent earlier this year, raised its annual cost-cutting target from $1 billion to $1.3 billion.
Its Group sales came down by as much as 11%, which includes a fall in network equipment sales to $5.8 billion. Nokia said sales of mobile network products accounted for around 80% of the overall decline in network sales. Overall, the networks division’s revenue came down in all major geographies, particularly in North America and Europe, two major markets for the company.
Nokia blamed the weak margin on Brazil operator Oi’s filing for bankruptcy protection in June and said excluding that, the margin would have been nearly 7%.
“(We) expect to see slight sequential improvement in both net sales and operating margin in our networks business from the second quarter to the third, followed by significant improvement from the third to the fourth quarter,” chief executive Rajeev Suri said in a statement.
Nokia repeated its full-year forecast for network sales to fall but changed the target for the operating margin to 7 to 9% from more than 7% previously. Analysts had expected a full-year margin of 8.8%.
Once the world’s biggest phone manufacturer, Nokia now focuses exclusively on telecom equipment. It sold off its handset business to Microsoft in 2014. The company recently announced that it would be bringing Nokia branded smartphones to the market again.
Most of the markets have already spent on 4G equipment, which is one of the key reasons for drop in network sales for the company. Besides the service providers are increasing their focus on virtual networks, which means that they are spending less on network hardware. The company is also facing stiff competition from Chinese vendor, Huawei, which is increasing its marketshare in most of the geographies.