Nokia said it faced a challenging first quarter and reiterated its guidance for lower earnings in 2018 as it puts more money into testing 5G services. For Q1, net sales fell 9 percent from the year before to EUR 4.9 billion, with sales declining 12 percent at Networks but rising 48 percent at Nokia Technologies, the company’s licensing business. On a constant currency basis, net sales were flat, but Nokia said it sees the market improving in H2, thanks to a faster start to 5G.
Nokia said sales were mainly pulled down by weakness in North America. However, with a strong order intake and backlog, the company expects profitability here to improve significantly in the second half. The company said progress had been made with its strategy to diversify and grow by targeting adjacent markets.
The company raised its expectations for the main Networks division in 2018, with the addressable market expected to fall 1-3 percent rather than the 2-4 percent previously forecast. Nokia Networks still aims to outperform the market this year, helped by accelerated 5G launches in late 2018 rather than the early 2019 previously expected. The company noted that customer demand for 5G further accelerated in the quarter, especially in North America.
The adjusted operating profit went 30 percent lower in Q1 to EUR 239 million, with the margin down to 4.8 percent from 6.3 percent a year ago. Adjusted earnings per share fell to EUR 0.02 from 0.03, while the reported diluted loss per share narrowed somewhat at EUR 0.06 versus a negative 0.08 the year before. Net cash and current financial investments slipped to EUR 4.2 billion from 4.4 billion the year before.
Nokia said it remains on target to deliver EUR 1.2 billion in recurring annual cost savings this year. However, driving the adoption of 5G and supporting 5G customer trials will result in EUR 100-200 million in temporary expenses this year, up to double the previous estimate of EUR 100 million.
For the full year, the company still sees the adjusted operating margin going to 9-11 percent, and then rising to 12-16 percent in 2020. Adjusted diluted EPS is forecast at EUR 0.23-0.27 for 2018 and 0.37-0.42 for 2020. The recurring cash flow will be slightly positive this year and clearly positive in 2020. Capex will amount to EUR 700 million in 2018, and increase by 25 percent over the longer term.
