Nokia posted schizophrenic second-quarter financial results that only continue what has been a rollercoaster-like year for the Nordic vendor. Nokia’s latest quarter included plunging revenues, a surprise profit, and plenty of drama around its 5G portfolio and COVID-19.
From a financial perspective, Nokia reported that net sales dropped 11% year over year to $6 billion during the quarter. That drop was spread evenly across Nokia’s different operating segments. However, the vendor was able to trim operational costs to reverse its $226 million loss reported last year to a $100 million profit this year.
Nokia CEO Rajeev Suri explained in an investor note that the “better-than-expected profitability” showed that the vendor’s ongoing cost rationalization efforts were starting to pay off. “These results show that our execution has improved as planned and that we are well positioned to end the year with a significantly stronger financial position,” he wrote.
Playing on that positivity, Suri said the vendor was adjusting the midpoint for its previously announced full-year earnings per share and operating margin guidance.
While profits did beat expectations, Suri tied the quarterly sales dip to the ongoing COVID-19 pandemic and a “sharp decline” in its sales in China.
Suri tagged the ongoing COVID-19 pandemic as having a $591 million impact on net sales through the first half of the year. This included around a $250 million impact in Q1, with the rest in Q2. However, Suri did explain that the vendor expects that impact to be shifted to future quarters “rather than being lost.”
As for China, Nokia has garnered some contracts in that country, but has struggled to find the cost efficiencies and performance being offered by its rivals. Suri did highlight that Nokia was making progress in driving down the cost and increasing the performance of its 5G gear. Both of those issues have plagued the vendor’s ability to gain market share against rivals Ericsson, Huawei, and Samsung.
Fellow Nordic-based vendor Ericsson has also cited financial strain tied to China, with the vendor noting last month that it expects a $108.5 million hit on its Q2 bottom line tied to the Chinese market.
The vendor also expressed some surprise by the adoption of its ReefShark 5G chip architecture, with Suri noting, “pleasingly, our ‘5G Powered by ReefShark’ shipments continue to increase and we believe we remain on track to reach 35% or better by year end.”
Nokia’s first-half struggles have also included a reported hostile takeover attempt that has so far been held at bay, and an executive shakeup that will see Pekka Lundmark replace Suri as CEO on Aug. 1.
More dramatic for Nokia moving forward was a report earlier this month that Verizon has decided to remove the vendor as a 5G supplier and rip out all of Nokia’s legacy 4G LTE equipment from its network. That decision is expected to benefit Ericsson and Samsung, which are now set to share Verizon’s 5G contracts.
When presented with the chance during its Q2 conference call with financial analysts to speak on its work with Verizon, Suri provided only a boilerplate answer.
“We do not comment on our customers vendor strategy,” Suri said. “Nokia is proud to serve Verizon and we are committed to continuing to help them build the best, reliable, and highest performing network. We work with them across multiple technologies with most of our end-to-end portfolio, if not all, and we have a long standing strategic partnership in key technologies, and we play a critical role in Verizon’s 4G networks and continue to work with them to accelerate innovation around 5G technology.”
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World news – FI – Nokia Hit by COVID-19, China, Eeks Out Profit – SDxCentral