Wireless equipment maker Nokia Oyj reported an unexpected quarterly loss as it took an early hit in the battle to supply the next generation of mobile networks.
The results make it harder for Nokia to meet its earnings targets for this year and the Finnish vendor said it was now under “significant pressure on execution in the second half.”
Its shares fell as much as 10 percent, their steepest intraday drop since October 2017.
Photo: Reuters
The loss contrasts with an improved performance by its Swedish rival Ericsson AB.
While both companies are trying to clinch 5G customers at low prices in the hope they can sell more to them later, Ericsson still published stronger-than-expected results last week.
Nokia and Ericsson are also trying to capitalize on the woes of Chinese rival Huawei Technologies Co (華為), which faces headwinds in several countries over concerns that its equipment could be used for state-sponsored espionage.
Britain is expected to become the latest Western country to announce measures that could make it tougher for Huawei to do business.
However, the benefits for its two main rivals could take years to emerge as all three jostle for vital early contracts on 5G that would help them to lock in longer-term revenue.
“The first quarter was really weak, but still it’s the same story that at the end of the year it will take off at a steeper slope, driven by 5G deliveries,” said Mikael Rautanen, an analyst at Inderes. “This is testing for nerves.”
Nokia had already said spending on 5G networks would be skewed toward the second half of this year.
Nokia chief executive officer Rajeev Suri yesterday said that competitors were being more “commercially aggressive” in the early stages of the rollout.
This was happening as “some customers reassess their vendors in light of security concerns, creating near-term pressure, but longer-term opportunity,” Suri said.
However, he said he was not surprised by his company’s weak first-quarter performance.
“The 5G ecosystem is still maturing and as that happens our opportunity increases,” he said.
Nokia reported an adjusted operating loss of of 59 million euros (US$66 million), compared with an average profit estimate of 282.7 million euros in a Bloomberg survey. It repeated its forecast for earnings per share of between 0.25 and 0.29 euros this year and slightly positive recurring free cash flow.
It was unable to recognize approximately 200 million euros of net sales related to 5G deliveries in the first quarter, mainly in North America, “which we expect to recognize in full before the end of 2019,” Nokia said.
Nokia’s shares have gained 2.6 percent this year, underperforming Ericsson, which is up 22 percent.
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