HELSINKI (Reuters) - Nokia named the man who led a turnaround at its main telecoms network business as its new chief executive on Tuesday, boosting investors’ confidence in the future of the company following the sale of its once-dominant handset arm.
The Finnish company, which completed the 5.6 billion euro ($7.8 billion) deal to sell its mobile handset business to Microsoft on Friday, said Rajeev Suri would become CEO on May 1, replacing Microsoft-bound Stephen Elop.
It also announced forecast-beating quarterly results, driven by cost-cutting and software deals at its networks arm, formerly called NSN, and plans to return $3.1 billion to shareholders, helping to lift its share price by more than 7 percent.
“Mr. Suri has done a very commendable job in turning around NSN, in our view. Thus, we see the market being positive about his appointment,” JP Morgan Cazenove analysts said.
Suri, a 46-year-old Indian national, was widely expected to lead the company after the sale of the handset business.
Nokia’s networks division accounted for about 90 percent of sales from the group’s continuing businesses last year. But analysts say it faces challenges, as higher research and development costs give bigger, deep-pocketed telecom equipment makers such as industry leader Ericsson and China’s Huawei an advantage.
Still, Nokia beat expectations with a core operating profit margin of 9.3 percent in the first quarter, well ahead of the 5.7 percent average forecast by analysts polled by Reuters.
The margin is also expected to remain at the higher end of a 5-10 percent target for this year, the company added.
“On first-quarter results, NSN steals the show with a solid margin beat and expanded 2014 (guidance),” Jefferies analysts Lee Simpson and Robert Lamb said in a note.
Following the sale of its handset business, analysts have speculated that Nokia might seek to buy struggling rival Alcatel-Lucent, or at least its mobile products, which would boost the Finnish company’s position in the United States.
Asked about potential acquisitions, Suri told Reuters in a telephone interview that small deals are possible.
“In terms of larger players, if there is something that makes sense, of course I will recommend that to the board. But ... it needs to be a wisely thought-out thing,” he said.
“We will be open to the opportunities but (there’s) no need to rush.”
Suri said all three of Nokia’s business areas - in addition to the networks unit, it has navigation and patents businesses - had opportunities for organic growth, without acquisitions.
“In a world where everyone and everything will be connected, there will be more and more synergies between the three businesses as we move forward,” he added.
The company could look to sell combined patent and technology licenses, he said, adding that it could potentially license its brand as well and could even return to consumer electronics business in the long term, utilizing expertise it still has in that area.
In a conference call with analysts, he also said that the company has won several unannounced contracts in Europe.
Nokia’s once industry-leading mobile handset business fell behind rivals such as Apple and Samsung in moving into smartphones, and a turnaround drive by outgoing CEO Elop failed to deliver quick results.
The company’s shares, which traded at more than 28 euros in 2007, plunged to as low as 1.33 euros in 2012, before recovering somewhat, mainly in the wake of the Microsoft deal. Nokia was the biggest gainer among European blue-chip stocks in early trade, up 7.2 percent to 5.51 euros at 0910 GMT. The shares drifted slightly in the afternoon but were still up 2.9 percent at 1531 GMT.
In a bid to keep investors onside while it changes focus, Nokia said it would pay an extra 1 billion euros ($1.4 billion)in dividends for last year and start a 1.25 billion euro share buyback program.
The extra dividend of 0.26 euros per share is on top of the annual dividend of 0.11 euros for last year. The ordinary dividend will cost the company another 400 million euros, or about half of Nokia’s earnings for last year.
“The dividend proposal is slightly smaller than expected, but the buyback program is quite extensive. It reflects the management’s view that the stock is valued below its sum-of-parts,” said Inderes analyst Mikael Rautanen.
Nokia said it would cut debt by 2 billion euros, which would save it about 100 million euros in interest annually.
Suri said he expects the improved finances to lift Nokia’s credit rating back to investment grade and that he is “absolutely fixated” on that goal.
Nokia said its net cash position at the end of March was 2.1 billion euros, down from 2.3 billion at the end of last year. Had the handset unit sale closed in the first quarter, the net cash position would have been 7.1 billion euros, Nokia added. ($1 = 0.7223 Euros)
Editing by Mark Potter and David Goodman