Nokia shares drop on disappointing 5G equipment news

Visitors gather outside the Nokia booth at the Mobile World Congress in Barcelona, Spain, February 26, 2019. REUTERS/Sergio Perez/Files

HELSINKI (Reuters) – Finland’s Nokia plunged to a surprise quarterly loss after it failed to supply 5G telecoms equipment in time, and said the security dispute surrounding rival Huawei was creating pressure to invest as customers reassess their suppliers.

Shares fell 9 percent to 4.68 euros on the news on Thursday, their lowest level in six months. Nokia said it would be under significant pressure to deliver in the second half after a slow start to the year in supplying next-generation mobile gear.

Nokia counts Sweden’s Ericsson and China’s Huawei as its main rivals, and some analysts say the Finnish company may benefit from challenges faced by Huawei after Washington alleged its equipment could be used by Beijing for spying – charges Huawei denies.

Ericsson last week posted January-March quarter profit that beat forecasts, spurring the Swedish firm to lift its outlook for the global telecom networks market.

But Nokia said on Thursday: “Some customers are reassessing their vendors in light of security concerns, creating near-term pressure to invest in order to secure long-term benefits.”

Nokia said a failure to book about 200 million euros ($222 million) of net sales related to 5G in North America weighed on its first-quarter results. It expects to recognise the amount during the full year.

The company’s core networks business generated a loss of 254 million euros during the quarter, compared with a gain of 46 million in the year-ago quarter, as its investments into 5G are yet to generate profits.


Investors and analysts said different speeds of rollout of 5G product offering, and a different set of customers could explain why Nokia has had a rockier start to 2019 than Ericsson.

“Huawei’s unclear situation has turned negative for Nokia in the short term, even though it should be more of an opportunity in the longer term,” said analyst Mikael Rautanen of equity research firm Inderes, referring to operators postponing their investment decisions.

“It looks like Nokia has not upgraded its product offering fully to 5G yet. They explain it with external reasons like standards, but there have to be also internal factors,” he said.

Nokia, which signalled in January that it would have a particularly weak first quarter, made an operating loss (non-IFRS) of 59 million euros, compared with a profit of 239 million euros in the year-ago quarter.

That compared with analysts’ profit expectations ranging from 175 million to 457 million euros profit in a Reuters poll.

The telecom networks industry has faced slowing demand since 4G network sales peaked in the middle of the decade, and is betting on a new cycle of network upgrades to 5G.

Nokia — which said it had won 36 commercial 5G deals so far — repeated its January forecasts for a “flattish” market in 2019, and for its 2019 earnings per share of 0.25-0.29 euros, and 2020 EPS of 0.37-0.42 euros.

($1 = 0.8970 euros)

(Reporting by Anne Kauranen, Tarmo Virki in Helsinki; Writing by Michael Kahn; editing by Emelia Sithole-Matarise and Georgina Prodhan)

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