Nokia's telecom network profit drops in first quarter

Company cites lower software sales, R&D costs and challenging conditions in Europe and Latin America

Finland's Nokia on Thursday reported quarterly profits clearly below market forecasts at its main telecom network equipment business after earlier this month announcing a plan to take over smaller French rival Alcatel-Lucent .

Overall revenue held up well to come in slightly ahead of forecasts, but Nokia said profits dropped due to lower software sales, higher research and development costs and challenging conditions in Europe and Latin America.

Nokia expected some of the negative factors to ease in the second half of the year.

However, it signalled a more cautious stance on full-year networks profitability, saying it expects non-IFRS operating margins around the midpoint of its earlier goal of 8 to 11%. Analysts in Reuters poll had been expecting a full-year margins of 11%.

The network unit, where Nokia competes mobile leader Sweden's Ericsson and low-cost powerhouse China's Huawei, saw its core operating profit fall 61% for a year ago to 85 million euros ($94 million), or 3.2% of sales.

Analysts in a Reuters poll had on average expected a profit of 226 million euros and a margin of 8.7%.

Nokia, once the world's largest maker of mobile phones, last year sold its former flagship phone business to Microsoft , leaving it with the network equipment unit, navigation business HERE and a smartphone patent portfolio.

The patent unit doubled its quarterly profit to 193 million euros, compared to 86 million euros expected by analysts.

The takeover of Alcatel-Lucent is aimed at achieving scale to better compete with Ericsson and Huawei, as well as wring out cost savings of 900 million euros by 2019, amid weak growth prospects for the industry.

Nokia's shares have fallen more than 11% since the Alcatel deal was made public, as many analysts see risks in integrating the companies and expect difficulties of cutting costs.

The stock remains up just 5% this year, against a 16% gain in the 25-component STOXX Europe tech index of which it is a member.

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