Nokia CEO Rajeev Suri has come out feeling buoyant after another year of declining sales, warning again it’ll be a tough 12 months trudging through the infrastructure desert, but the 5G oasis is almost within touching distance.
The final quarter of the year was largely in line with analyst expectations but did demonstrate a 1% decline in revenues to €6.67 billion, while across 2017 on the whole total revenues a nervous 3% to €23.2 billion. Considering where the industry is on the buying rollercoaster a 3% dip isn’t the worst case scenario, but it far from back-slapping territory.
“Looking forward on the Networks side, we expect our market to decline again in 2018, although at a slightly lower rate than our previous forecast, given early signs of improved conditions in North America,” said Suri. “For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks.”
Share price is down slightly (at the time of writing) over the last 24 hours, though it isn’t exactly an earth shaking movement. Nokia hasn’t really said anything which would surprise, scare or encourage people yet.
Yes, revenues are down but the spending days of 4G are over and 5G is yet to arrive. The rest of the industry are suffering the same drought, though Nokia seems to be weathering the dry-patch better than its Nordic neighbour Ericsson. We’re sure Suri is confident about Nokia’s positioning ahead of the 5G storm, but any CEO worth a few quid would be. And finally, winning contracts in the US isn’t exactly anything which indicates changing tides in fortunes; Huawei and ZTE are effectively banned from the country.
Suri is doing exactly what he is supposed to do considering the market conditions. March the company through the baron patch in as good as shape as possible before 5G ends the spending scarcity and contracts are being snapped up everywhere.
Looking at the individual units, the network business was down 4% to €5.8 billion, while Technologies grew by 79% to €554 million. Nokia did sign a licensing agreement with Huawei just before Christmas though there are still very few details about this relationship. This along with an arbitration ruling related to a contract dispute with BlackBerry added €210 million of non-recurring revenue into the Technologies pot, which might go someway to explain the massive boost there.
In the downward-facing network business, Ultra Broadband Networks dropped 4% to €2.4 billion, Global Services was down 7% to €1.6 billion and IP Networks and Applications saw a dip of 1% to €1.7 billion. The fourth quarter proved to be a strong one for Nokia as total sales numbers across 2017 are a bit worse off.
Unfortunately for Suri, while this quarter was not disastrous in terms of sales totals the profit margin is starting to go down the toilet. Technologies saw a massive 146% uplift, but in networks (which accounts for 87% of the total business) the year-on-year decline was very notable.
Profits in Ultra Broadband Networks plunged 20%, Global Services nosedived 47% and IP Networks and Applications was down 12%. Interestingly enough, profits were worse off in the fourth quarter compared to the full 12 months, while sales were up. Perhaps like every business Nokia is one which gets a few end of year nerves and starts handing out the discounts willy-nilly.
Overall, Nokia is still making money. It might be making less money than before but this isn’t as bad as it could have been. That seems to be the message from the team to investors; it is a tough landscape at the moment, but there is plenty to look forward to. The infrastructure giant does seem to negotiating the difficult period between 4G and 5G sales cycles better than Ericsson, but considering the direction the Swedes are heading that doesn’t seem to be saying much these days.