It’s time to stop thinking that the Finnish firm just makes handsets

 
Elizabeth Fournier

AFTER figures this week proved just how dominant Samsung has become in the global smartphone market, it’s no wonder investors cheered yesterday’s deal – Nokia has been in dire need of an alternative revenue stream for some time.

The firm has long been dogged by its reputation as a handset maker – cemented in the early 2000s by the success of its 1100 and 3210 models – but has struggled in recent years, with its Lumia smartphone range lagging behind rivals, despite sales rising in the first quarter of this year.

Now it’s taking a chance on networks, buying out Siemens’ stake in NSN and bagging itself a bigger slice of the lucrative broadband infrastructure market. Strategically, the deal makes perfect sense. While Nokia made a net loss of €272m in its second quarter, NSN has seen a dramatic turnaround in recent months, upping its profit margin over the last 12 months to 8.2 per cent from just 0.5 per cent in the previous year.

But while the outlook for NSN seems positive, the hit to its new parent’s balance sheet from the €1.7bn price tag is a big one. This may be a fair deal for a fast-growing firm, but investors should hold fire until it’s clear whether the stretch it puts on Nokia’s cash reserves is too much.