Nokia Plunges to Surprise Q1 Loss on Delay in Booking 5G Payments

Finnish telecom network equipment maker Nokia plunged to a surprise quarterly loss due to a delay in booking 5G payments and said on Thursday the security dispute surrounding rival Huawei was creating near-term pressure to invest.

Shares in the company fell 10 percent to their lowest level in six months as Nokia said it also expected pressure in the second half of the year.

The company said a failure to book about EUR 200 million ($223.1 million) of net sales related to 5G in North America weighed on results during. It expects to recognise the amount during the full year.

The company's networks business generated a loss of EUR 254 million ($283.26 million) during the quarter, compared with a gain of 46 million in the year-ago quarter, as its own investments into 5G are yet to generate profits.

"The slow start to 2019 and expected weak overall first half puts significant pressure on execution in the second half," the company said.

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 the Chinese group after Washington alleged its equipment could be used by Beijing for spying - charges Huawei deny.

"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 in a statement.

Modest expectations
Nokia, which signalled in January that it would have a particularly weak first quarter, made an operating loss (non-IFRS) of EUR 59 million ($66 million) from a profit of EUR 239 million in the year ago first quarter.

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

"Clearly the profit missed expectations," Mikael Rautanen, an analyst with equity research firm Inderes said. "The expectations were very modest. The outlook remained intact."

The telecom networks industry has faced slowing demand since 4G network sales peaked in the middle of the decade but a new cycle of network upgrades appears to be kicking in as demand for 5G technology increases.

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 EUR 0.25-0.29, and 2020 EPS of EUR 0.37-0.42.

That contrasts with rival Ericsson which last week posted January-March quarter profit that beat forecasts due to strong growth in North America and cost cuts, spurring the Swedish firm to lift its outlook for the global telecom networks market.

© Thomson Reuters 2019