Telecommunications equipment manufacturer Nokia lowered its full-year profit and profit margin forecast on Thursday. Its stock price plummeted 13% because the new CEO of the Finnish company adjusted its strategy to win the 5G competition.
CEO Pekka Lundmark announced a new strategy under which the company will have four business units. Nokia said that Nokia will “do everything possible” to lead the 5G field, lagging behind Swedish rivals Ericsson and China’s Huawei.
Nokia reduced its full-year profit forecast range by 0.02 euros (approximately 2 rupees) to the midpoint of 0.23 euros (approximately 20 rupees) per share. The company’s third-quarter results were basically in line with analysts’ expectations .
Lundmark said in a statement: “We expect to stabilize our financial performance in 2021, and gradually improve towards our long-term goals thereafter.”
The company also lowered its 2020 operating profit margin forecast from 9.5% to 9%, and by 2021 it is expected to have an operating profit margin of 7% to 10%.
JP Morgan analysts said that higher R&D spending may make profit margins lower than the 2021 consensus estimate of 10.9%.
Liberum analysts said in a report: “Due to Nokia’s relatively low market share, it may find challenges in improving operating margins.
Ericsson announced last week that its quarterly core earnings were higher than market expectations, thanks to higher profit margins and the launch of 5G in China, and said it was “more confident” in achieving the 2020 target.
Unlike Ericsson, Nokia has not won any 5G radio contracts in the highly competitive Chinese market.
As more and more telecom operators begin to deploy 5G networks, Nokia and Ericsson have won more customers in Europe, and due to security concerns, more and more governments have avoided China’s Huawei.
However, Nokia suffered a setback in the third quarter because it lost to Samsung Electronics in its contract to supply 5G equipment to Verizon.
Lundmark said: “We have lost the share of a large North American customer, see some profit pressure in this market, and believe that we need to further increase R&D investment to ensure our leading position in 5G.”
Due to the weak service business, its quarterly revenue also declined.
Nokia said that its basic earnings from July to September were the same as the same period last year, at 0.05 euros (approximately 5 rupees) per share, in line with the 0.05 euros (approximately 5 rupees) consensus in the Refinitiv survey.
© Thomson Reuters 2020
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