Nokia Tops Quarterly Expectations, Remains Optimistic on 5G

By Nimra Noor, International Business Editor

Telecom network gear maker, Nokia has reported better-than-expected 2017 profits, boosted by a one-off patent payment from China’s biggest smartphone maker offset weak global sales of its mainstay network equipment.

The Finnish company’s financial results show that it has coped with the downturn better than Ericsson, which reported its fifth straight quarter of losses a day before Nokia’s posted its quarterly profits. “The outlook is a bit confusing … Looks like they want to shed some light on the long-term because investors are so focused on current challenges,” said Mikael Rautanen, analyst at Inderes Equity Research, with a “buy” rating on the stock. “They had a better quarter in networks than Ericsson, but it is the same story for the outlook.”

According to Business Insider, Nokia’s capability of managing the downturn better than Sweden’s Ericsson is due to its 2016 acquisition of Alcatel-Lucent, which broadened its portfolio and helped develop new products, including broadband equipment, fast traffic routers, and high-capacity chipsets.

The network industry, dominated by Huawei, Nokia and Sweden’s Ericsson, is weathering the toughest part of a decade-long cycle as demand for 4G gear falls, while spending on new, mass-market 5G networks is unlikely before 2019 or 2020.

Nokia’s fourth-quarter group earnings before interest and taxes increased 7 percent from a year ago to 1.0 billion euros ($1.2 billion), well above analysts’ average forecast of 888 million euros in a Reuters poll. However, the profits were boosted by a one-off patent payment of 210 million euros and operating profit from the networks business fell 25 percent year-on-year.

Chief Executive of the Finnish company’s mobile network business, Rajeev Suri said that while Nokia’s network sales would remain weak this year, a potential rebound of spending by operators in North America could lessen the decline.

“For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks,” Suri said in a statement. He further said investments in 5G would weigh on the networks unit’s profitability this year, and forecast an operating margin of 6-9 percent for 2018 and 9-12 percent for 2020, compared to 8.3 percent in 2017.

The CEO further said the company had moved quickly to fix internal problems it had convincing U.S. carriers to swap out existing Alcatel equipment for comparable Nokia gear, which was the main reason for its shares losing a quarter of their value since October. While network sales will remain weak during 2018, a potential rebound of spending by operators in North America could lessen the decline, Suri said.

“We see some positive signs coming from our North American customers,” Suri told investors on a conference call to discuss the results. “The desire to move fast to 5G is certainly there.”

Nokia seems to have a good sense of what will happen with 5G and in what countries, starting with leaders in U.S., China, Japan, South Korea, Nordics and some parts of Europe that will follow. “We’re getting a good sense of what that is sort of going to be like,” Suri said. “It is clear the demand is there on the basis of capacity increase,” as well as from the B2B environment where industrial, utility and transportation companies are asking operators to give them 5G capability from a capacity and latency perspective.

 

A version of this article appeared in the Tuesday, February 13th print edition.

Contact Nimra at

nimra.noor@student.shu.edu

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