Nokia hailed continued momentum around 5G infrastructure deals during Q3, but cut its full year earnings forecasts for 2019 and 2020, citing pressure on its margins and the need to increase investments in various areas.
In an earnings statement, CEO Rajeev Suri (pictured) said the vendor had launched 15 live 5G networks by end-September and held a total of 48 deals at that point. The executive noted strength in its Enterprise, and Software and IP routing divisions during the period, leaving it confident of a solid fourth quarter.
But he acknowledged “some of the risks that we flagged previously related to the initial phase of 5G” began to materialise in Q3, impacting its gross margin. Specific areas of concern included Nokia’s “product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty” around T-Mobile US and Sprint’s planned merger in the US, which is having an effect on the operators’ network investment plans.
Nokia aims to “progressively mitigate these issues” during 2020, Suri said, noting an increased investment in 5G as a key element in achieving this, enabling the vendor to “accelerate product roadmaps and product cost reductions”. It also plans to pump more into “the digitalisation of internal processes to improve overall productivity”, while continuing to invest its fast-growing enterprise and software businesses.
“Given these investments and the risks we see materialising, we are adjusting our targets for full-year 2019 and 2020; and we expect our recovery to drive improvement in our 2021 financial performance relative to 2020.”
Analysts at Finnish equity research company Inderes branded the company’s earnings a “major disappointment”, noting Nokia had tripped up just as the 5G market began to gather steam, Reuters reported.
The criticism came despite Nokia overturning a net loss of €127 million in Q3 2018 with a €87 million profit in the recent quarter, on sales of €5.68 billion, up 4 per cent year-on-year.
Its Networks business remained its key revenue generator, with sales up 4 per cent to €4.4 billion, though its Software unit registered the highest annual growth, up 9 per cent to €677 million. Revenue from the Technologies unit grew 2 per cent to €358 million.
Over the opening nine months of 2019, Nokia reduced its net loss by 28 per cent to €545 million, with sales up 5 per cent to €16.4 billion.Subscribe to our daily newsletter Back