Nokia Projects Lower Profit Margins

Nokia Oyj predicted that profit margins would shrink for its division of network-equipment, signaling that the company would sacrifice earnings so they can revive sales in an attempt to rebuild itself following the sale of its phone unit in 2013 to Microsoft.

Operating profit for the network unit, excluding certain costs, will be between 1% and 9% of its quarterly sales, said the Finland-based company on Thursday.

Nokia, which shifted focus on its Nokia Solutions and Network division after the sales of the phone division, is struggling in its attempt to increase revenue as its carriers cut back spending. The company also needs to compete with its larger rivals Ericsson AB and Huawei Technologies for new network contracts.

Nokia said its network division’s profit margin for the full-year would be nearer the higher end of the 5% to 10% range, citing efforts to increase sales growth and the competitive dynamics in the industry.

Nokia has cut over 21,000 jobs at its network unit, which it took over in full last year from Siemens AG. It has also sold other assets in order to revive its profitability.

Shares at Nokia dropped 4% in early trading on Thursday, Through Wednesday, the stock has nearly doubled in value since last year’s deal with software giant Microsoft. Shares at Alcatel and Ericsson also were down in European trading.

Sales, during the fourth quarter at NSN, dropped by 22% to $4.2 billion. The operating profit at the unit, excluding some items, dropped to 11.2% of sales. Analysts had predicted operating profit to be 12.7%.

Sales dropped by 21% for the quarter. Nokia agreed last year to sell the mobile phone unit after it struggled to regain popularity in its smartphone line after the iPhone from Apple was introduced in 2007.

The mobile division is now headed by Stephen Elop, who resigned as CEO at Nokia to switch to Microsoft with the phone unit.

The value of Nokia is now for the most part linked to its NSN and its cash. Nokia finished the fourth quarter of 2013 with cash of more than 9 billion euros and will receive 5.44 billion euros shortly from the Microsoft deal.

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