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Nokia plunges as outlook points to `bumpier' path to 5G

Jan 31 2019 18:57
Niclas Rolander, Bloomberg

Nokia shares plunged after the maker of telecom equipment forecast weaker-than-expected 2019 earnings as carriers hold off on buying the 5G systems that are key to its growth.

Nokia forecast earnings that missed analysts’ estimates and predicted the first quarter will be “particularly weak” with customers in markets including the US expected to bump back purchases to the second half of the year.

Nokia shares fell as much as 7.3% in Helsinki, the steepest intraday decline in six months, as investors looked past strong fourth-quarter earnings. The stock fell 7.1% to 5.28 euros at 10:04.

The Finnish maker of wireless networks now expects the market for telecommunications gear to remain stagnant this year before growing in 2020. It predicts a “staggered” rollout in important places like the US, Japan, Korea and China, Chief Executive Officer Rajeev Suri said on a call with reporters.

“The market was expecting better guidance for this year, ” Inderes analyst Mikael Rautanen said in comments posted online.“The prize remains there, and Nokia is heading toward it, but the journey is foggier and bumpier than expected.”

Suri spent much of 2018 promising that the final months of the year would show a sharp increase in spending by US operators, who are starting 5G services. Although the final quarter of 2018 delivered, lifting the full-year operating margin at the company’s key networks business to 6%, Nokia expects the first six months of 2019 to be “soft” followed by a much more robust second half.

Nokia still believes it can win market share in competition with Huawei and Sweden’s Ericsson AB, which last week said it expects the market for radio-access network equipment to grow by 2% this year.

Nokia’s forecast for full-year earnings per share of 0.25 euros to 0.29 euros lagged the average estimate of 0.32 euros, according to data compiled by Bloomberg.

The Finnish company’s earnings follow a more upbeat report from Ericsson, which said last week it reached its 2020 profitability target two years early. Nokia and Ericsson stand to gain market share at a critical time for 5G system spending from carriers globally as security concerns about Chinese competitor Huawei mount.

Executives from Nokia and Ericsson have been careful not to be seen to benefit from Huawei’s pain. Both companies manufacture in China and do business with carriers in the country. Suri on Thursday said Nokia is closely monitoring the situation around Huawei.

“The situation is still very much in flux, and the outcome is for governments to decide, not Nokia,” Suri said on the call with reporters.

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