This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Nokia's Cost-Cutting Looks Good Only on Paper

NEW YORK ( TheStreet) -- As much as I've wanted to like Nokia's (NOK - Get Report) prospects as a good turnaround candidate, it doesn't appear this is a story that's going to end well. Nokia has made great strides to improve its profitability, despite what bulls may want to believe, but the company's still hemorrhaging market share.

If management has been unable to capitalize on the collective weaknesses of Apple (AAPL) and BlackBerry (BBRY), investors have to wonder if Nokia can ever turn things around, especially since Samsung's new Galaxy S4 has been considered "underwhelming."

Nokia's first-quarter earnings were disappointing.

Companies don't reach the depths Nokia has reached without having grossly mismanaged the business. By the same token, I'm willing to give management credit for at least improving Nokia's financial position. Unfortunately, profitability is also a side effect of how well your core product is received in the marketplace.

In the case of Nokia, the fact that revenue declined 20% this quarter suggests consumers remain unimpressed. While that's not entirely a surprise the fact that revenue declined almost 30% sequentially certainly was shocking, especially since the Lumia 920 was seen as a significant catalyst. Consequently, Nokia's device business continues to suffer, losing 32% this quarter.

The 5% drop in Nokia Siemens Network, or NSN, the joint venture with Siemens (SI), also came out of nowhere. NSN has been Nokia's saving grace for some time. Nokia had shown meaningful progress, growing NSN 5% in the fourth quarter and 14% from the third quarter. So the fact that NSN posted a 30% sequential decline is glaring, especially given Nokia's persistent struggles in the devices business.


However, profitability was okay. Management's cost-cutting efforts did well, offsetting Nokia's poor sales. The fact that adjusted gross margin improved by almost four points deserves some applause. It's not Apple's level of profitability, but it is progress -- both NSN and the devices businesses improved over last year. Accordingly, Nokia was able to reverse last year's loss in operating income into a modest profit.

While profitability is something on which investors can hang their hat, the fact is, cutting costs only looks good on paper. Everything else in this report was a disaster, led by a 25% decline in overall unit sales, which also plummeted 28% sequentially. Fittingly, Nokia's Lumia platform was the lone bright spot in this quarter, advancing by almost 30% sequentially.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
NOK $8.01 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs