5G Supply Failure Pushes Nokia To A Surprise Quarterly Loss

The failure of being able to deliver 5G telecoms equipment in time was the primary factors for a surprise quarterly loss for Finland’s Nokia, the company announced and added that the there was pressure on the company to make investment because the clients were reassessing their suppliers following the security dispute surrounding rival China’s Huawei.

The news of the drop resulted in Nokia shares dropping be 9 per cent to 4.68 euros on Thursday which is the lowest mark in the last in six months. Following a slow start to the year in supplying of the next-generation 5G mobile gear, there would be significant pressure on Nokia to delivery equipment in time and according to schedule in the second half of the year, the company said.

According to Nokia, it main rivals in the telecom equipment industry are Sweden’s Ericsson and China’s Huawei. According to some analysts, the challenges being faced by Huawei following the furious allegations by the United States that the telecom equipment could be used by Chinese agencies for spying on western countries, could ultimately benefit the Finnish company. Huawei has denied all the charges against it.

Ericsson beat market estimates of profit for the January-March quarter last week which prompted the company to increase its outlook for the global telecom networks market.

But Nokia said on Thursday: “Some customers are reassessing their vendors in light of security concerns, creating near-term pressure to invest in order to secure long-term benefits.”

Its first quarter results were weighed down by the incident of the company failing to book about 200 million euros ($222 million) of net sales in connection to 5G network in North America, Nokia said. The company now expects to recognise the amount during the full year.

In comparison to a gain of 46 million in the year-ago quarter, Nokia reported a loss of 254 million euros during the quarter in the company’s core networks business. The company said that this was because the investments made by it in 5G have not borne profits yet.

The reason behind a more delayed beginning to the 2019 for Nokia compared to Ericsson was potential because of a different set of customers and varied pace of rollout of 5G product offering, said investors and analysts.

“Huawei’s unclear situation has turned negative for Nokia in the short term, even though it should be more of an opportunity in the longer term,” said analyst Mikael Rautanen of equity research firm Inderes, referring to operators postponing their investment decisions. “It looks like Nokia has not upgraded its product offering fully to 5G yet. They explain it with external reasons like standards, but there have to be also internal factors,” he said.

Compared with a profit of 239 million euros in the same year-ago quarter, an operating loss (non-IFRS) of 59 million euros was reported by Nokia, which had already said in January that it would have a particularly weak first quarter.

(Adapted from Reuters.com)

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Categories: Economy & Finance, Strategy, Sustainability, Uncategorized

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