HELSINKI — Telecom network gear maker, Nokia, posted better-than-expected quarterly profits yesterday and forecast a recovery in profits by 2020, encouraging investors spooked last year by a weakening equipment market and acquisition integration missteps.
Reuters
Nokia shares rose 6,8% on the results, which showed fourth-quarter group operating profit increasing 7% to 1 billion euros ($1,2 billion), well ahead of a Reuters poll forecast of 888 million euros.
The profits were boosted by a one-off patent payment of 210 million euros from China’s Huawei. Operating profit from the networks business fell 25% year-on-year.
The network industry, dominated by Huawei, Nokia and Sweden’s Ericsson, is weathering the toughest part of a decade-long cycle as demand for 4G gear falls, while spending on new, mass-market 5G networks is unlikely before 2019 or 2020.
Chief executive, Rajeev Suri said that while Nokia’s network sales would remain weak during 2018, a potential rebound of spending by operators in North America could lessen the decline.
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He added that the company’s internal problems convincing US carriers to swap out existing Alcatel equipment for comparable Nokia gear — the main reason for its shares losing a quarter of their value since October — had also eased.
Nokia generated 30% of fourth-quarter network sales in North America, up slightly over the third quarter, while Asia-Pacific and Greater China declined.
“For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks,” Suri told a conference call.
Suri said Nokia’s stepped-up capital spending to win future 5G upgrade deals will weigh on the network unit’s profitability this year. He forecast an operating margin of 6-9% for 2018 before it starts to rebound to around 9 to 12% in 2020.
“It’s a bit confusing that they give such precise guidance for long term … because there’s no visibility on the market for long-term … Estimates for just one year are difficult, doing it for three years is quite bold,” an analyst at Inderes Equity Research, Mikael Rautanen,said.
“They had a better quarter in networks than Ericsson, but it’s the same story for the outlook.”
Nokia has coped with the downturn better than Ericsson — which reported its fifth straight quarter of losses on Wednesday — thanks to its 2016 acquisition of Alcatel-Lucent that broadened Nokia’s portfolio.
Rautanen noted that Nokia’s profits were boosted by a one-off patent payment of 210 million euros, and the company said its technology licensing business would prop up its profits with sales growth around 10% through 2020.