All Eyes On Nokia's New CEO

Apr.30.14 | About: Nokia Corporation (NOK)

Summary

Nokia appointed Rajeev Suri as the new CEO.

Nokia released better-than-expected earnings for the first quarter of its 2014.

Nokia announced a €5 billion ($6.9 billion) plan to improve its capital structure.

Recently, Nokia (NYSE:NOK) appointed Rajeev Suri as its President and Chief Executive Officer. Suri, 46, has a bachelor of engineering degree in electronics and telecommunications from the Mangalore University. He is one of the few top executives who have risen to the top without a management degree from a pedigreed MBA institute.

Suri joined Nokia in 1995 as a system marketing manager, and has served as CEO of the company's unit named 'Nokia Solutions and Networks' (NSN) for four years. He has shown his excellence in bringing up many innovative ideas in the department. During his four years there, he radically transformed NSN segment, bringing it to the level of leaders in the telecommunications infrastructure industry. As a majority of the company's future growth is expected to come from the networking unit, it is expected that he can excel in the chair.

A few years ago, Nokia was the undisputed king of the mobile phone market. Due to stiff competition from Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF), it has lost significant market share in the mobile phone business. As Nokia has sold its Devices and services business to Microsoft (NASDAQ:MSFT), it is now free from worrying about the losses from that division. Over the past few years, the division has cost Nokia billions, while other sides of the company's business have improved dramatically.

In the first quarter of 2014, Nokia reported net sales of €2.644 billion ($3.66 billion), which decreased 15% from a year earlier. Revenue from the handset division fell by 30% to €1.92 billion ($2.66 billion), while the division's operating loss widened to €326 million ($451 million), from a €73 million ($101 million) loss a year ago. Overall, Nokia posted a €239 million ($331 million) net loss in the quarter, down from a €272 million ($376 million) loss a year earlier. Excluding the handset division, the company would have posted a €108 million ($149 million) profit in the first quarter, up from a €98 million ($136 million) loss a year ago.

Under the leadership of Suri, Nokia could reach to its previous highs. The new CEO perfectly knows the company so he has all the experience and the abilities needed to work well as CEO. Nokia Chairman Risto Siilasmaa said in a statement:

As Nokia opens this new chapter, the Nokia Board and I are confident that Rajeev is the right person to lead the company forward. He has a proven ability to create strategic clarity, drive innovation and growth, ensure disciplined execution, and deliver results. We believe that his passion for technology will help ensure that Nokia continues to deliver innovations that have a positive impact on people's lives.

Nokia's network unit was long in the red, but turned profitable in 2012 after Suri reduced costs and shed loss-making business. He is credited with turning the unit around, and last year it contributed most of the €12.7 billion ($17.58 billion) turnover Nokia made from its continuing operations. Last year, the NSN division's sales were €11.3 billion, while navigation unit, HERE, accounted for €914 million and its patent unit, dubbed advanced technologies, accounted for €529 million.

As Nokia completed the sale of its mobile handset division, now it has a significant cash balance. The company has an opportunity to buy rivals and expand. The new CEO has said that with huge cash they have the ability to acquire smaller firms to fill gaps in its product portfolio. Suri has also said that all three of Nokia's business areas (network equipment unit NSN, the mapping business "HERE," and Advanced Technologies) have opportunities for organic growth, without acquisitions.

Some analysts expect Nokia could try to purchase its rival Alcatel-Lucent (ALU) or its mobile products assets. When asked about acquisitions, Suri told Reuters in an interview that small ones 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 make sense, it needs to be a wisely thought-out thing. We will be open to the opportunities but (there's) no need to rush.

Suri also sees good growth potential in patent licensing deals. He said the company could bundle intellectual and technology licensing and grow in that manner.

Nokia also announced a €5 billion ($6.9 billion) capital structure optimization program, which includes resumption of ordinary dividends, distribution of excess capital to shareholders, share buyback, and debt reduction. The company plans to return €3 billion ($4.15 billion) to shareholders through a special dividend and a share buyback. An ordinary dividend of €0.11 ($0.15) per share is planned for fiscal 2013 and 2014. Additionally, a special dividend of €0.26 ($0.36) per share is planned for 2014, to be paid on or about July 3.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.