Nokia posted better than expected results, underscoring its relative strength in telecoms equipment, and boosted investments in the next-generation 5G networks designed to boost profits by the end of the decade.
The Finnish group announced that fourth-quarter underlying operating profit was up 7 per cent year on year to €1bn, well ahead of the average analysts’ forecast of €888m. Swedish rival Ericsson had attributed its gloomy results on Wednesday to telecoms operators who cut spending ahead of the rollout of 5G.
Investors pounced on their diverging fortunes: Nokia’s shares rose 9 per cent on Thursday to €4.20 while Ericsson’s on Wednesday fell 9 per cent after it announced its fifth successive quarterly loss.
Rajeev Suri, Nokia’s chief executive, said the group spied the opportunity to invest €100m more in accelerating the rollout of 5G networks with dozens of trials set to start this year. Full adoption in pioneer countries such as the US, Japan, China, South Korea and the Nordics is likely to take place in 2019 and 2020, leading to rising earnings in those years, he said.
“5G will accelerate. We’re an important constituent trying to make that happen. The technology is ready, and trials will start to happen this year,” Mr Suri told the Financial Times.
Nokia’s underlying operating margin reached 15.1 per cent in the fourth quarter. It said this would slip to 9-11 per cent this year but would increase to 12-16 per cent by 2020.
The group’s shares have been under pressure for much of the past three years as the entire telecoms equipment industry struggled with the fallow years that typically occur in between technological upgrades.
Mr Suri said Nokia’s main networks business would remain weak in 2018 with the market expected to decline by 2-4 per cent. But he added that spending by North American operators could start to increase again.
Nokia went through a big restructuring several years ago after selling off its mobile-phone business and buying Alcatel-Lucent. That contrasts with Ericsson, once the industry leader, which is struggling with a high cost base as it tries to compete with China’s Huawei.
Nokia’s net sales fell 1 per cent in the fourth quarter to €6.7bn but increased 5 per cent on a constant currency basis. It proposed an increase in the dividend from €0.17 per share to €0.19 and promised further rises this year.