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Can Nokia Overcome a Difficult Macroeconomic Environment in 2016?

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Nokia expects a fall in wireless segment

In Nokia’s (NOK) 2Q16 earnings call, it said that it continues to expect its wireless infrastructure business segment to fall in 2016, along with a flattish networking market globally. Macroeconomic headwinds and a weakness in major markets continue to impact Nokia’s revenue. Nokia has always maintained that it aims to increase its market share and penetration in order to drive revenues in the long run.

Earlier, Nokia said that 2016 is a year of transition for the company. Its focus is on successfully integrating Alcatel-Lucent and reducing costs. In its earnings call for fiscal 2Q16, it said it expects “continued improvement in net sales and operating margin over the course of the next two quarters.”

Revenue fell 11% YoY in 2Q16

As you can see in the above table, Nokia’s revenue fell 11.0% YoY (year-over-year) in 2Q16 and 9.0% YoY on a constant currency basis. Revenues from Nokia’s networks business and Nokia Technologies fell 11.0% YoY.

Nokia’s gross margin fell to 38.8% in 2Q16 from 39.2% in 2Q15 and 39.4% in 1Q16. Operating profits had a significant fall of 49.0% YoY in 2Q16 and fell YoY for each business segment. Nokia’s operating margin fell from 10.2% in 2Q15 to 6.2% in 1Q16 and 5.8% in 2Q16.

Nokia has a market cap of $29.4 billion. In comparison, peer companies such as Ericsson (ERIC), Cisco (CSCO), and Japan’s (EWJ) NTT DoCoMo (DCM) have market caps of $18.2 billion, $152.0 billion, and $97.0 billion, respectively.

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