Wireless equipment maker Nokia Oyj reported an unexpected quarterly loss as it took an early hit in the battle to supply the next generation of mobile networks.
The results make it harder for Nokia to meet its 2019 profit targets and the Finnish vendor said it was now under "'significant pressure on execution in the second half.'' Its shares fell as much as 11%, their steepest intraday drop since October 2017.
The loss contrasts with a strengthening performance by its Swedish rival Ericsson. While both companies need to clinch customers for their fifth-generation network gear at low prices in the hope they can sell more to them later, Ericsson still published stronger than expected results last week.
Nokia and Ericsson are also trying to capitalise on the woes of their Chinese rival Huawei, which faces headwinds in several countries over concern that its equipment may be used for state espionage. Britain is expected to become the latest Western country to announce measures that could make it tougher for Huawei to do business.
The benefits for its two rivals could take years to emerge, however, as all three jostle for vital early contracts on 5G that will help them to lock in longer-term revenue.
“The first quarter was really weak, but still it’s the same story that at the end of the year it will take off at a steeper slope, driven by 5G deliveries,” said Mikael Rautanen, an analyst at Inderes. “This is testing for nerves.”
Nokia had already said spending on 5G networks will be skewed toward the second half of this year. Chief Executive Officer Rajeev Suri said on Thursday that competitors were being more “commercially aggressive” in the early stages of the rollout.
This was happening as “some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity,” said Suri. He said his company’s weak first-quarter performance was no surprise: “The 5G ecosystem is still maturing and as that happens our opportunity increases.”
Some sales of 5G software that Nokia hoped to secure failed to materialise during the quarter. Suri called it “a bit of a perfect storm” that should subside in coming quarters.
Nokia reported an adjusted operating loss of €59m, compared to an average profit estimate of €282.7 million in a Bloomberg survey. It repeated its forecast for earnings per share of between €25 and €29 cents this year and slightly positive recurring free cash flow.
It said it was unable to recognise approximately €200m of net sales related to 5G deliveries in the first quarter, mainly in North America, “which we expect to recognise in full before the end of 2019.”