Thursday, April 25, 2019

Nokia reports a weak Q1 as it waits for 5G spending to accelerate

Nokia reported a weak Q1 but said it remains confident that spending by mobile operator will accelerate in the second half of the year.

Overall, Nokia's reported net sales grew approximately 2% to EUR 5.032 billion. A decline in Nokia gross profit was primarily attributable to Networks, which was negatively affected by broad-based gross margin erosion in Mobile Access.

Rajeev Suri, Nokia's CEO, states: "As the year progresses, we expect meaningful topline and margin improvements. 5G revenues are expected to grow sharply, particularly in the second half of the year, driven by our 36 commercial wins to date. Global services profitability should improve as we recover in a handful of large rollout projects, IP routing is now firmly back to growth given our product leadership, and optical networks continues its long run of growth. We are also seeing good underlying momentum in our strategic focus areas of software and enterprise, and we are moving steadily forward on our path to build a strong licensing business that is sustainable for the long-term.

"In terms of risks, one factor is our slow start to the year. In addition, competitive intensity has slightly increased in certain accounts as some competitors seek to be more commercially aggressive in the early stages of 5G and as some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity. We will continue to take a balanced view, and are prepared to invest prudently in cases where there is the right longer-term profitability profile. We are also progressing well with our previously announced EUR 700 million cost savings program."

Some highlights:

  • Networks net sales grew 4%. On a constant currency basis, Networks net sales were flat.
  • A slight growth in Networks net sales was due to IP Routing, Mobile Access and Optical Networks, partially offset by a decrease in Fixed Access.
  • A decrease in Networks gross profit was primarily due to Mobile Access and Fixed Access, partially offset by IP Routing and Optical Networks. 
  • A decrease in Mobile Access and Fixed Access gross profit was primarily due to lower gross margin. The increase in IP Routing and Optical Networks gross profit was primarily due to higher net sales.
  • In Q1 2019, Nokia was unable to recognize approximately EUR 200 million of net sales related to 5G deliveries mainly in North America, which the company expects to recognize in full before the end of 2019.