Nokia reported a weak set of first-quarter results, moving back into the red as competition steps up for new 5G contracts. The company said that while some risk factors have increased, it still expects results to improve in the course of the year as 5G roll-outs ramp up and to meet its 2019 targets.
In the three months to March, revenues rose 2 percent to EUR 5.032 billion but were down 2 percent on a constant currency basis. The company noted that its competitive product portfolio held up well in an improving industry environment, but it missed out on EUR 200 million of net sales related to 5G deliveries mainly in North America, which will be booked only later in 2019.
The adjusted operating result moved to a loss of EUR 59 million from a profit of EUR 239 million a year ago, and the net loss widened to EUR 0.08 per share from EUR 0.06. Nokia said the result was due to lower gross profit, partially offset by a positive fluctuation in financial income and expenses, higher income tax benefits and lower operating expenses. It also showed a net outflow of EUR 1.1 billion in cash, which it blamed on weak seasonality and changes in net working capital.
CEO Rajeev Suri said the weak Q1 was expected. "While overall risks have increased slightly, we continue to see positive developments and are maintaining our guidance for the full year," he said in a statement. The risks include a slow start to the year, and a slight increase in competitive intensity in certain accounts, "as some competitors seek to be more commercially aggressive in the early stages of 5G and as some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity", Suri said. Nokia will "invest prudently in cases where there is the right longer-term profitability profile", while also continuing with its previously announced EUR 700 million cost savings programme.
On the outlook, Nokia expects a "substantially stronger financial performance" in the second half of 2019 as large-scale 5G deployments accelerate meaningfully. It has signed 36 commercial 5G deals to date. The full-year forecast includes an adjusted operating margin of 9-12 percent, slightly positive recurring cash flow and EPS of EUR 0.25-0.29 in 2019.
The company also said it agreed a new, unnamed licensing customer at the end of Q1, which should be signed in the coming weeks. This is expected to boost annual run-rate sales at Nokia Technologies to EUR 1.4 billion.
