Nokia Oyj shares fell the most since 1991 after the Finnish company cut its outlook and paused its dividend, warning that an earnings boost from 5G mobile networks would take longer to materialize as it invests more in products to fend off rising competition.
The equipment vendor lowered earnings and margin expectations for this year and next, and said it would not distribute dividends for the third and fourth quarters of fiscal 2018.
Nokia is not expecting a recovery for its earnings until 2021, about a year later than previously. The stock dropped 24 percent at the open in Helsinki.
Photo: Bloomberg
“Some of the risks that we flagged previously related to the initial phase of 5G are now materializing,” Nokia chief executive officer Rajeev Suri said in a statement, pointing to price competition and the steep cost of products.
Nokia will spend more on developing 5G products and making them less expensive, Suri said.
“We expect that we will be able to progressively mitigate these issues over the course of next year,” he said.
Adjusted earnings per share (EPS) for this year are now forecast at 0.18 euros to 0.24 euros (US$0.20 to US$0.27), down from 0.25 euros to 0.29 euros.
Daniel Djurberg, an analyst at Handelsbanken in Stockholm, said the guidance cut for this year was “hefty” and characterized the drop for next year as dramatic.
For next year, Nokia reduced its EPS expectations to 0.20 euros to 0.30 euros — down from 0.37 euros to 0.42 euros.
Price competition is particularly tough in China, while there is uncertainty related to the merger of phone carriers in North America, Suri said, a reference to the planned tie-up between Sprint Corp and T-Mobile US Inc.
If the two US operators are allowed to combine, that might curb demand for 5G equipment, assuming they can benefit from network overlaps.
“We do have an issue relating to higher product cost, which is not particularly surprising at this early stage in a new 5G radio cycle,” Suri said on a call with reporters. “Those costs typically go down significantly as scale increases and cost optimization work proceeds.”
Ericsson AB’s networks business has seen a return to form in recent years as the company has increased spending on 5G research and development, while at the same time trying to rein in other costs.
With yesterday’s announcement, it appears that Nokia is following in the footsteps of the Swedish firm, while also hoping that its broader so-called end-to-end product offering will lure more network technology customers.
“While I’m not completely satisfied with our current performance, I am confident that our strategy remains the right one,” Suri said.
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