Nokia Oyj named Rajeev Suri chief executive officer, picking the head of its networks division to chart the company’s future and forecasting a return to sales growth after selling the mobile-phone business to Microsoft Corp.
The stock jumped the most in six months after Espoo, Finland-based Nokia also said it plans to spend about 5 billion euros ($6.9 billion) on dividends, share buybacks and debt reduction. The appointment of Suri, 46, ends the search for a replacement for Stephen Elop, who returned to Microsoft with the sale of Nokia’s handset division for $7.5 billion.
By choosing Suri, 149-year-old Nokia is intensifying its focus on wireless-network equipment as it faces a new start without the phones that made it famous. Suri, who has run the network unit for four years, needs to challenge larger Ericsson AB and Huawei Technologies Co. to reverse falling equipment revenue, which accounts for about 90 percent of Nokia’s sales.
“Suri is a strong choice as CEO,” said Hannu Rauhala, an analyst at Pohjola Bank in Helsinki. “The industry is going through a major shift to software-defined networking so he certainly has plenty of work ahead of him.”
Suri has spent almost 20 years in Nokia’s networks business, dealing with strategy, mergers and acquisitions, sales and marketing before becoming its head in 2009. An electronics and telecommunications engineer from Mangalore University in his home country of India, Suri cut jobs and focused on more lucrative deals to boost earnings at the unit.
The stock rose as much as 7.9 percent for its biggest increase since October and traded 7.2 percent higher at 5.51 euros as of 12:09 p.m. in Helsinki. Through yesterday, it had gained 73 percent since the sale to Microsoft was announced.
Nokia has three businesses left after the phone-unit sale: the networks division, which made up 71 percent of Nokia’s adjusted operating profit in the first quarter, its maps business, and the unit responsible for licensing its patents.
After the dividend and buybacks, Suri will still have cash left over to invest. Nokia would have had 7.1 billion euros in net cash at the end of March had the Microsoft deal been completed by then. The company said last week the proceeds, which include patent-licensing fees, may be “slightly higher” than the 5.44 billion euros originally agreed.
Nokia could make “small” acquisitions to fill in gaps in its product offering, Suri said today in an interview. The company can compete in all its three business areas and has no plan to focus on just networks, he said.
The company plans to pay about 800 million euros in ordinary dividends for last year and 2014, or 11 cents a share for 2013 and at least the same amount for this year. It also plans a one-time dividend of 1 billion euros, or 26 cents a share, to be paid on or about July 3, and stock buybacks of 1.25 billion euros over two years.
Nokia could invest more in research and development and purchases, said Sami Sarkamies, an analyst at Nordea Bank AB in Helsinki. The network unit sells base stations, antennas and other equipment for mobile carriers and offers related services.
“The news on capital allocation was fairly in line with expectations,” Sarkamies said. “It’s clear the networks business is here to stay, but they’ll need to work on new partnerships and smaller acquisitions.”
Nokia is seeking alliances similar to a pact it has with Juniper Networks Inc. to expand its networks business, Suri said in an interview in February. Last year, Nokia considered buying the wireless-equipment unit of France’s Alcatel-Lucent SA, people familiar with the matter have said.
First-quarter net income, excluding the division sold to Microsoft, was 108 million euros, compared with a loss of 98 million euros a year earlier, Nokia said. Sales fell 15 percent to 2.66 billion euros, compared with the average analyst estimate of 2.85 billion euros. Revenue at the network unit dropped 17 percent to 2.33 billion euros, affected by lower services sales, currency fluctuations and divestments.
Nokia agreed to sell the phone division in September, after racking up losses of more than 5 billion euros over nine quarters. The deal was completed last week.
Once the world’s largest smartphone maker with a market share topping 50 percent, Nokia dropped outside the top five in recent years with about 3 percent share as Apple Inc. (AAPL:US)’s iPhone and phones using Google Inc. (GOOG:US)’s Android software gained dominance.
With its market capitalization down to 19 billion euros from 300 billion euros in 2000, the challenge for Nokia is to once again find a new incarnation to revive its fortunes. Founded as a wood-pulp mill in 1865, Nokia’s transformations have included switches from rubber boots and toilet paper to cables, televisions, computers and mobile phones.
Suri cut more than 25,000 jobs over the past two years to bring the network unit back to profit. Nokia repeated today it expects the division’s adjusted operating margin this year to be toward the higher end of a range of 5 percent to 10 percent. Network sales will rise in the second half from a year earlier, Nokia forecast. The company plans to phase out the division’s old name, Nokia Solutions and Networks, or NSN.
Nokia’s top management team will consist of Suri, Chief Financial Officer Timo Ihamuotila, maps chief Michael Halbherr, acting technology chief Henry Tirri, and Samih Elhage, the finance and operating chief of networks. Juha Akras, head of human resources, Louise Pentland, its chief legal officer, and Kai Oistamo, the head of development, are leaving the company.
Nokia also said it plans to reduce its debt by about 2 billion euros by the end of the second quarter of 2016 as it tries to bring its debt back to investment-grade status.
Nokia’s credit rating could be raised if it extends its track record of positive performance, while managing a conservative capital structure, Moody’s Investors Service said on Jan. 28. It could also face a downgrade if its capital structure significantly deteriorated through a major distribution to shareholders, Moody’s said.
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