By Tiernan Ray
Shares of Nokia (NOK) are up 41 cents, or almost 6%, at $8.35, continuing pre-market gains, after the company this morning beat Q3 expectations, and raised its profit outlook.
Revenue in the three months ended in September 41%, year over year, to €3.32 billion, yielding €0.09 per share.
Analysts had been modeling €3 billion and €0.07 per share.
Profit, excluding some costs, almost quintupled to €760 million.
Nokia said its “Networks” business unit had 13% revenue growth, to €2.9 billion. The company said the results showed its “strong position in a world where technology is undergoing significant change.”
The company noted several positive factors in the networks business:
Performance at Nokia Networks was particularly satisfying, with both growth and improved profitability. Progress was widespread, with four of our six regions increasing sales; Mobile Broadband sales and profitability were up sharply; Global Services delivered its sixth consecutive quarter of double digit profitability; and I was pleased to see a rebound in Europe driven by our robust deal momentum. That said, I also want to be clear that Networks benefited from some unique developments in the quarter, with a business mix weighted towards Mobile Broadband and regional mix that included strong gains in North Ameri
Nokia said the network unit’s operating profit margin this year is now expected to rise above 11%, better than the company’s targeted range of 5% to 10%. The company also raised its capital spending forecast to €250 million for the year, up from €200 million expected previously.
Wells Fargo’s Maynard Um reiterates a Market Perform rating on the stock and a valuation range of $8 to $8.80, writing that “Networks drove the surprise to the upside with HERE and Technologies slightly below expectations [...] Sales were driven primarily due to major new LTE deployments in North America and China.” Adnaan Ahmed of Berenberg reiterates a Buy rating, and an €8.40 price target on the ordinary shares (NOK1V), writing that “The key to the Nokia investment case is that its Networks margins do not fall off a cliff.”
He tells investors to expect minimal growth next year, on constrained capital spending by carriers:
For all of last year and this year (with today’s guidance), Nokia’s Networks business has been able to sustain 10%+ margins. We think this should continue for the next 12-18 months, as long as telco spend does not precipitously decline. Obviously, a major worry in the market right now is that US spend has peaked, as has China’s, and – outside of Vodafone – in Europe spend is muted. We agree with most of these assertions. We think Nokia’s Networks business will grow at a 3% clip next year. It will continue to benefit from Vodafone and some of the recent wins it has had in Europe. In the US, it has hardly any exposure to AT&T and Verizon. Sprint and T-Mobile are its major customers and T-Mobile is now starting to deploy LTE-advanced, which should be good for revenues and margins.