It is becoming increasingly increasing difficult for the Finnish telecom company Nokia to keep pace with its rivals in the 5G mobile connectivity industry.
That was probably reflected when the profit outlook for the current year as well as for the next year was cut down by the Finnish telecoms equipment maker on Thursday while also announcing its decision to scrap payments of dividends. At the same time, the company also issued warnings for investors about increasing completion in the 5G industry as well as a significant drop in orders from China.
The share of the company tumbled by 20 per cent in Helsinki because of the series of negative announcements made by the company.
However, during the first nine months of the year the company reported a growth of 5 per cent in sales, as Nokia reported its earnings, which came in at €16.4 billion or $18.25 billion. However that growth could not be converted into profits by the company for the period.
“Competitive intensity has increased in some accounts as some competitors seek to share in the early stages of 5G,” Nokia said in the earnings report. The company informed that it has managed to secure 48 commercial contracts for 5G networks while its Chinese rival Huawei has struck 60 such contracts, according to reports, despite being blacklisted by the United States and barred from doing any business there. Additionally, telecom service providers in the US have also been advised by the US government of not using Huawei equipment for construction of their 5G network over concerns that the equipment from the Chinese company could have backdoors which can be used by Chinese agencies to spy on the US and hence compromise national security.
There were expectations among some analysts that the ban and trouble for Huawie could mean Nokia would benefit in the 5G industry. However the earnings report from Nokia published by the company on Thursday showed that the disappointing performance was driven primarily by the poor performance of its division that is responsible for 5G business of the company.
An 11 per cent year on year drop in third-quarter gross profit at €1.3 billion or $1.5 billion was posted by Nokia’s networks unit. The company said that this was partly because of the result of “relatively high 5G product costs, as well as elevated levels of deployment services, consistent with being in the initial phase of 5G.”
The company said that there was a staggering 21 per cent year on year drop in the sale of the company in China at €425 million or $473 million during the quarter because of “continued competitive pressure” in the market.
In comparison, one of the major competitors of both Nokia and Huawei – Ericsson, forecast last week about a possible enhancement in sales for next year than had been forecast by it earlier because of an anticipated strong demand for its 5G telecom expertise and equipment.
“5G is taking off faster than earlier anticipated,” CEO Börje Ekholm said in an earnings statement. The Swedish company said it had signed 27 commercial 5G contracts.
(Adapted from CNN.com)