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Nokia (NOK) Slips to a 52-Week Low: What's Pulling it Down?

Shares of Finland-based Nokia Corporation NOK tumbled to a 52-week low of $5.11 on May 12. This drop in price is in sync with the recent downtrend for the telecom giant, whose shares have lost 9% since the company announced its first-quarter 2016 results on May 10.

Sales Decline in Q1

The mobile device maker saw its top line shrink 9% year over year (on a comparable combined company basis) to €5.6 billion (approximately $6.2 billion) in the first quarter of 2016. Moreover, revenues lagged the Zacks Consensus Estimate of $6.3 billion. The top line was hurt by the lackluster performance of the Nokia Networks division.

Sales at the company’s flagship division declined 8% (on a comparable combined company basis) to €5,181 million (approximately $5,715 million) in the quarter. The segment, which includes, Ultra Broadband Networks and IP Networks and Applications, suffered due to a 12% decline in the Ultra Broadband Networks sub-group. The Ultra Broadband Networks sub-group plummeted due to the 15% reduction in Mobile Networks.

Geographically, the Nokia Networks unit saw net sales declining in all regions apart from Latin America where growth was 6%. Net sales declined in North America (17%), Middle East & Africa (11%), Asia-Pacific (6%), Greater China (5%) and Europe (3%). Segmental gross margin contracted 340 basis points to 38.3% in the first quarter of 2016.

We note that Nokia officially took control of Alcatel-Lucent earlier in the year. The integration process is underway and Nokia announced that it has started trimming its workforce as part of the process. The layoffs will continue till 2018-end. Nokia now expects to realize net operating cost synergies of more than the previously stated €900 million from the Alcatel-Lucent deal in 2018.

Outlook on Network Sales

The company does not expect its struggling Nokia Networks unit to show any recovery this year. Nokia expects net sales in its primary division to continue falling in 2016 due to the declining wireless infrastructure market, among other headwinds. The bearish outlook on the company’s primary unit also disappointed investors, contributing to the share price fall.

The disappointing first-quarter results and the bearish outlook resulted in the downward movement of the Zacks Consensus Estimate by 2 cents to 30 cents over the last 7 days for this Zacks Rank# 3 (Hold) stock.

Other Picks

Investors interested in the broader Computer & Technology sector may consider BlackBerry Limited BBRY, KT Corp. KT and Medical Transcription Billing, Corp. MTBC. All the three stocks carry a Zacks Rank #2 (Buy).

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