Nokia's second-quarter profit fell more sharply than expected, partly the result of telecom operators spending less on faster mobile networks, while the company raised a cost-cutting target for its newly-acquired Alcatel-Lucent business.

Nokia said on Thursday second-quarter earnings before interest and taxes fell 49 per cent to €332 million euro, clearly missing the average analyst forecast of €400 million given in a Reuters poll of analysts.

Cost-cutting target

The company, which took control of French network gear maker Alcatel-Lucent earlier this year, raised its cost-cutting target for the merger, saying it was now seeking annual savings of €1.2 billion in 2018, compared with more than €900 million previously.

Nokia, once the world's biggest mobile phone maker, was caught out by the rise of smartphones and ended up selling its handset business to Microsoft in 2014. It now focuses on telecoms network equipment.

Its group sales dropped 11 per cent from a year ago to €5.67 billion, including a fall in network equipment sales to €5.23 billion, which compared with a market consensus of €5.42 billion.

Mobile network products

The company said sales of mobile network products were particularly weak, accounting for about 80 per cent of the overall decline in network sales. Overall, the networks division’s revenue fell in all major geographies and decreased 12 per cent both in North America and Europe, its two largest regions. The network business’s margin was 6.0 per cent in the quarter, compared with a market view of 6.8 per cent.

The rationale for Nokia's Alcatel-Lucent €15.6 billion deal was to make it easier to compete with Sweden's Ericsson and China's Huawei in a market with limited growth prospects until a fresh cycle of network upgrades begins around 2020.

Mobile network spending on the latest generation of 4G equipment has peaked in the biggest markets, forcing equipment makers to rely on incremental upgrades. Operators are also pushing to cut costs by switching to virtual networks, meaning they are spending less on network hardware. In May, Nokia signed a licensing agreement to bring Nokia-branded smartphones back to the market. – (Reuters)