Finland's Nokia today 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.
The network unit, where Nokia competes with mobile leader Sweden's Ericsson and low-cost powerhouse China's Huawei, saw its core operating profit fall 61% for a year ago to €85m, or 3.2% of sales.
Analysts in a Reuters poll had on average expected a profit of €226m 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 €193m, compared to €86m 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 €900m 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.
