'Big three' 5G kit maker Nokia downgrades profits as returns from next-gen networks fail to show up

Nokia – one of the so-called "Big Three" 5G kitmakers – has downgraded profit forecasts for the year and cancelled dividends, saying investments in next-generation services have not yet yielded expected returns.

The company trimmed its 2019 profit outlook to earnings per share of €0.18-0.24 from a previous forecast of €0.25-0.29. It will not distribute cash to shareholders in the current fiscal, and it isn't expecting a full recovery for its earnings until 2021.

In third-quarter results (PDF) ended September 2019, revenue grew to €5.686bn from €5.458bn a year earlier. Profits were back in the black to the tune of €264m, versus a loss of €54m the previous year.

Rajeev Suri, Nokia president and CEO, said the business will up investment in 5G networks as it fights rivals for global contracts.

"Some of the risks that we flagged previously related to the initial phase of 5G are now materialising. In particular, our Q3 gross margin was impacted by product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty related to the announced operator merger in North America.

"We expect that we will be able to progressively mitigate these issues over the course of next year. To do so, we will increase investment in 5G in order to accelerate product roadmaps and product cost reductions, and in the digitalisation of internal processes to improve overall productivity.

"We will also continue to invest in our enterprise and software businesses, which are developing rapidly and performing well. Given these investments and the risks we see materialising, we are adjusting our targets for full-year 2019 and 2020; and we expect our recovery to drive improvement in our 2021 financial performance relative to 2020."

During the quarter, the firm launched 15 live 5G networks with customers, including Sprint, Verizon, AT&T and T-Mobile in the US; Vodafone Italy and Zain in Saudi Arabia; as well as SKT, KT and LGU+ in Korea.

Along with Ericsson and Huawei, Nokia is one of a trio of equipment makers dominating the 5G network infrastructure market. That lack of diversity is something that has worried British MPs – so much so that the Intelligence and Security Committee has warned excluding Huawei from the UK's 5G network infrastructure would harm resilience and "lower security standards".

So far, the British government has repeatedly deferred its decision on whether or not to ban Huawei equipment from 5G networks in the UK.

However, if it does, that will be a huge boost to Ericsson and Nokia. Mobile network O2 does not use Huawei in its 5G network, having determined that "the best choices for us at this time are our current partners, which are Ericsson and Nokia". ®