Nokia shares plunge 10% on profit slump

Finnish telecoms equipment maker Nokia saw profits in its core networks business drop 61 percent in the first quarter due to lower software sales, high costs and "challenging" market conditions, sending the company's shares lower by as much as 10 percent at the market open.

Nokia reported 85 million euros in first quarter operating profit in its Network division, down from the 216 million a year earlier, the company said on Thursday. Analysts polled by Reuters expected 226 million euros.

Despite this, net sales at the Nokia Networks business hit 2.67 billion euros, a 15 percent rise from the 2.32 billion euros reported in the same period last year. Operating margin also declined to 3.2 percent from 9.3 percent in the first quarter of 2014. Nokia said that it expects this to be between 8 percent and 11 percent for the full year.

Overall, group net profit rose to 177 million euros from a net loss of 239 million euros the same period last year.

Henrik Kettunen | Bloomberg | Getty Images

The drop in profit in its core business was partially offset by strength in its mapping and licensing division.

HERE – the Finnish company's mapping division – saw operating profit of 19 million euros in the first quarter, a 90 percent rise from the 10 million euros recorder a year earlier. Nokia cited new vehicle licenses for embedded navigation systems in cars as the main driver.

The intellectual property division known as Nokia Technologies reported a 124 percent year-on-year surge in first-quarter operating profit, from 86 million euros last year to 193 million euros in the latest quarter. Nokia said this was driven by higher intellectual property licensing income from existing licensees.

"A number of factors in the quarter had a negative impact on profitability. We expect some of these negative factors to ease, particularly in the second half of 2015," CEO Rajeev Suri said in a statement.

Nokia-Alcatel deal

Earlier this month Nokia – which sold its handset business in a 5.44 billion euro deal to Microsoft last year – said it was in talks to buy smaller French rival Alcatel-Lucent.

Suri told CNBC recently that the company is "confident" that the deal will go through and in the earnings report on Thursday added that Nokia is "moving fast on the necessary integration planning, and have already established a structure designed to minimize disruption to our ongoing business".

Nokia CEO: Merger is a complimentary fit
Nokia CEO: Merger is a complimentary fit   

The deal is expected to close in the first half of 2016, providing it gets shareholder and regulatory approval.

Earlier this month, Nokia also announced it would look into a potential divestment of its HERE mapping business.

"The Board of Directors of Nokia believes this is the right moment to assess the position of HERE within the proposed new Nokia business. The strategic review of HERE is on-going and it may or may not result in a transaction," the company added in a statement.