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stock surged 15% on Friday, as the telecommunications maker raised full-year guidance after reporting an unexpected rise in second-quarter profit.
The Finnish telecommunications maker said net profit for the quarter rose 21% to €311 million, despite sales falling 11% to €5.1 billion, as it made better-than-expected profitability improvements. The sales dip was driven by the impact of Covid-19 and the company’s decision to take a more “prudent approach” to deal-making in China.
It said the coronavirus pandemic had a €300 million negative impact on net sales in the quarter, but expected most of those sales to shift to future periods, rather than being lost.
Nokia has struggled to secure 5G contracts from Chinese telecom companies but it did strike a deal in June to deliver around 10% of China Unicom’s core network. The “high level of competitive intensity” and its prudent approach to grabbing market share led to sales in China falling 41%, it said in its second-quarter results. Nokia is one of three major providers of 5G networks, along with Huawei and Swedish company
The Finnish company said it has now concluded 83 5G deals.
Proactive steps to reduce the volume of “low margin services business” also hit sales. Gross and operating margin expansion, leading to the surprise profit boost, was driven by strength in its mobile access segment, through the improved cost of 5G products. Gross margin of 39.6% beat analysts’ estimates of 36%.
Underlying earnings rose to €0.06 per share from €0.05 in the year-ago period, despite the company warning the virus would cause a weak second quarter. The company said it now expects 2020 adjusted earnings per share of €0.20 to €0.30, up from an original forecast of €0.18 to €0.28.
Looking ahead. Outgoing chief executive Rajeev Suri leaves his successor Pekka Lundmark, who is set to take over this weekend, a nice welcoming gift in the form of solid second-quarter earnings. The new boss still has a job on his hands and will want to return to sales growth and improve market share. The reluctance of some governments to buy Huawei equipment should help both Nokia and Ericsson—both have said they are ready to step in following the U.K.’s ban on the Chinese company.
Nokia stock surged 15% on Friday, as the telecommunications maker raised full-year guidance after reporting an unexpected rise in second-quarter profit.
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World news – FI – Nokia Stock Surges Despite Covid-19 and ‘Prudent Approach’ in China Hitting Sales. Here’s Why.