Cost cuts give unexpected boost to Nokia profits

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HELSINKI (Reuters) – Cost cuts provided an unexpected boost to Nokia’s fourth-quarter underlying profit on Thursday, driving its share price to a four-month high, although the Finnish telecom company said it was not ready to propose a dividend.

Nokia lowered its outlook in October and halted dividend payouts, blaming a need to step up investments in 5G and knocking more than a fifth from its value.

On Thursday, Nokia said its underlying earnings for the quarter ending in December rose to 0.15 euros per share from 0.13 euros per share a year ago, above the 0.13 euros consensus in a Refinitiv poll.

The results sent its shares up 7% in early trade, to the highest level since the October warning, and they were up 3.4% at 1009 GMT.

“There are small steps towards a better future,” Inderes analyst Mikael Rautanen said in a research note.

Nokia Chief Executive Rajeev Suri told journalists the fourth quarter had marked “a strong end to a challenging year”.

The company predicted the final quarter of 2020 would also see a concentration of operating profit and free cash flow, but said there were also still problems ahead.

The board would not propose a dividend for 2019 as it only expected to reach the 2 billion euro cash position it sees sufficient for profit distribution during the fourth quarter.

Analysts were expecting a dividend of 0.11 euros, according to a Refinitiv poll.

Nokia also repeated its forecast for 2020 underlying earnings per share of between 0.20 and 0.30 euros, compared to 0.22 euros in 2019.

Its warning in October was partly caused by investments in its 5G system-on-chip (SoC) development, which allows a single chip to carry an entire computer system and enables Nokia to produce its network technology more cheaply.

Suri said that by the end of 2019 10% of Nokia’s 5G offering was using system-on-chip, and that rate would increase to over 35% during 2020 and to 70% in 2021.

Nokia, which competes with Ericsson and Huawei for 5G network deals, said it expects intense competition to continue in 2020, as rivals seek to grab market share.

Suri told Reuters the company aimed to focus on its most profitable operations in China and make only prudent offers for large 5G radio network deals that are expected to become available.

Sales in the Greater China region dropped by 25% in the fourth quarter to 469 million euros.

Group sales were flat at 6.9 billion euros as declines in China and North America were balanced by growth in Asia-Pacific, a region where Nokia flagged new challenges.

In India, it said customer demand could weaken after the country’s Supreme Court upheld a ruling that telecoms companies must pay retroactive licence and spectrum fees.

(Reporting by Tarmo Virki and Anne Kauranen; Editing by Kim Coghill and Barbara Lewis)

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