April 30, 2020 / 5:25 AM / a month ago

Nokia makes small profit in face of supply disruption

(Reuters) - Nokia Oyj (NOKIA.HE) eked out a small profit in the first quarter, backed by demand for its new high-margin 5G telecoms equipment, and predicted a strong second half of the year, sending its shares higher.

FILE PHOTO: The logo of Nokia is seen before the company's news conference in Espoo, Finland March 2, 2020. Lehtikuva/Markku Ulander via REUTERS

The Finnish company said the bulk of the coronavirus impact will be felt in the current quarter. Its revenue slipped 2% in the first three months of the year as it took a hit of about 200 million euros ($217 million) largely because the pandemic disrupted supply from operations in China.

Nokia, battling with China’s Huawei and Sweden’s Ericsson (ERICb.ST), is trying to strengthen its 5G slate and looking especially to deployment by U.S. telecom companies for growth.

Ericsson and Huawei both increased their revenue in the first quarter, helped by strong demand as telecom services help to keep businesses working remotely during the pandemic.

Nokia expects a seasonally strong second half when it will have new leadership as former executive Pekka Lundmark from energy group Fortum (FORTUM.HE) is due to replace Chief Executive Rajeev Suri in September.

It trimmed its full-year earnings forecast to 23 euro cents from 25 cents, but shares in the company were up by 2.7% by 0900 GMT.

China has been a weak spot for Nokia but CEO Suri said the company had won a 10% share of China Unicom’s 5G core network order, with Huawei and ZTE (000063.SZ) taking most of the order.

“We are the only foreign supplier in China Unicom for 5G core,” Suri told Reuters in an interview.

According to media reports, Nokia did not win any 5G radio contracts from Chinese telecom companies - China Mobile, China Unicom and China Telecom - in recent bidding rounds.

CHALLENGES

Nokia reported January-March revenues falling to 4.9 billion euros, missing the 5.1 billion euro consensus figure, according to Refinitiv data.

“We did not see a decline in demand in the first quarter. As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may re-assess their spending plans,” Suri said in a statement.

Nokia generated first quarter underlying profit of 1 cent per share, broadly matching analysts’ forecasts, according to Refinitiv data based on 10 analysts. It had posted a loss of 2 cents per share in the same period last year.

Nokia, which axed its dividend after a profit warning last October, has been trying to tackle costs and delays in shipments and pointed to progress for its new 5G ReefShark equipment.

“As was expected, new uncertainties have been added to the outlook due to the pandemic but solving the company’s internal problems seems to progress on schedule,” Inderes analyst Mikael Rautanen wrote in a note.

Reporting by Tarmo Virki in Tallinn and Supantha Mukherjee in Bengaluru and Anne Kauranen in Helsinki; Editing by Raju Gopalakrishnan and Keith Weir

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