Nokia cuts profit forecast and revamps strategy, shares slump 13%

FILE PHOTO: A Nokia logo is seen at the company's headquarters in Espoo, Finland
FILE PHOTO: A Nokia logo is seen at the company's headquarters in Espoo, Finland, May 5, 2017. REUTERS/Ints Kalnins

October 29, 2020

By Anne Kauranen and Supantha Mukherjee

STOCKHOLM/HELSINKI (Reuters) – Telecom equipment maker Nokia <NOKIA.HE> cut its full-year profit and margin forecasts on Thursday, sending its shares tumbling 13% as the Finnish company’s new chief executive overhauled its strategy to win the 5G race.

Announcing a new strategy under which the company will have four business groups, CEO Pekka Lundmark said Nokia would “do whatever it takes” to take the lead in 5G where it lags Swedish rival Ericsson <ERICb.ST> and Chinese group Huawei.

Nokia lowered its full-year profit outlook range by 0.02 euros to a midpoint of 0.23 euros per share, having reported third-quarter results broadly in line with analysts’ expectations.

“We expect to stabilise our financial performance in 2021 and deliver progressive improvement towards our long-term goal after that,” Lundmark said in a statement.

The company also cut its 2020 operating margin forecast to 9% from 9.5% and for 2021 expects operating margin of 7-10%.

JP Morgan analysts said higher research and development spending was likely to drive the margins lower than the consensus expectations of 10.9% for 2021.

“Nokia is likely to find raising operating margins challenging due to its relatively low market share, Liberum analysts said in a note.

Ericsson last week reported quarterly core earnings above market estimates, helped by higher margins and China’s 5G rollout, and said it was “more confident” in meeting its 2020 targets.

Unlike Ericsson, Nokia has not won any 5G radio contracts in the highly competitive Chinese market.

Nokia and Ericsson have been gaining more customers in Europe as more telecom operators start rolling out 5G networks and China’s Huawei is increasingly shunned by several governments over security concerns.

Nokia, however, suffered a setback in the third quarter when it lost out to Samsung Electronics <005930.KS> on a part of a contract to supply 5G equipment to Verizon <VZ.N>.

“We have lost share at one large North American customer, see some margin pressure in that market, and believe we need to further increase R&D investments to ensure leadership in 5G,” Lundmark said.

Its quarterly revenue also fell due to weakness in its services business.

Nokia said its July-September underlying earnings were flat year-on-year at 0.05 euros per share, meeting the 0.05 euros consensus in a Refinitiv poll.

(Reporting by Supantha Mukherjee in Stockholm and Anne Kauranen in Helsinki; Editing by Aditya Soni, Keith Weir and Emelia Sithole-Matarise)