Finland’s Nokia, which planned to purchase French rival Alcatel-Lucent, reported quarterly earnings well beneath business conjectures at its primary telecom system gear business, sending its shares tumbling as much as 12 %.

Overall income at Nokia’s system unit was somewhat in front of expectations, yet benefits dropped 61 percent from a year prior because of lower software deals, the need to go after low-edge bargains in China and higher research and development costs.

“The capex conditions are challenging at this point, and there is a little bit more competitive activity overall,” Chief Executive Rajeev Suri told journalists, alluding to capital spending by network operators to redesign mobile systems in key markets the world over.

In spite of the fact that Nokia said a portion of the negative components adding to its frail first quarter results would ease in the second 50% of the year, it took a more mindful position on profitablity focuses for the entire year.

It now expects a system working edge around the midpoint of its prior objective of 8 to 11 percent. Analysts in a Reuters survey had been expecting an entire year edge of 11 percent.

“The networks business has performed well in the past two years, so this drop in profits is a real surprise and a disappointment,” said Mikael Rautanen, analyst at Inderes Equity Research.

“Estimates will be cut hard, and this raises concern whether this was a turning point for the worse for the unit.”

The network unit, where Nokia rivals Swedish market pioneer Ericsson and Chinesepowerhouse Huawei, saw its center working benefit tumble to 85 million euros ($94 million), or 3.2 percent of offers, contrasted and experts’ normal conjecture of 226 million euros.

Nokia reiterated that its arrangement to assume control littler rival Alcatel-Lucent would make it stronger.

The takeover intends to help scale to better contend with Ericsson and Huawei, and also wringing out expense funds of 900 million euros by 2019 in the midst of frail development prospects for the industry.