Nokia: Oops, financials aren't great. Never mind, 5G will solve our woes

Burning cash to keep the lights on in Finland as profits wobble

Fallen mobile phone giant Nokia posted financial results today that did not make happy reading for investors.

For the second quarter of 2018, Nokia reported sales of €5.3bn (£4.7bn), down 6 per cent on the same period in 2017. At the same time, operating profits (non-IFRS) sank by 43 per cent from €574m (£509m) in the year-ago quarter to €334m (£296m) in this one.

While missing the market forecasts, president and CEO Rajeev Suri tried to put a brave face on things, blaming currency fluctuations for the drop in sales. Suri went on to say that an acceleration in 5G adoption would see Nokia's full year "within the ranges of our annual".

Nokia has some ground to make up if so. Suri lists some successes in key early markets such as China and the US as signs that the communications outfit is on the right track. Earlier this month Nokia signed a deal with China Mobile worth a potential €1bn to deliver fixed and mobile networking technologies.

Shares in Nokia dropped by more than 5 per cent as investors digested the news and pondered if the promised arrival of 5G mobile communications would stem the flow of red from Nokia's accounts.

For its part, Nokia insists that market conditions will improve in 2018, particularly toward the end of the year in North America. It also admits to facing increasing price pressure with the likes of Huawei looking hungrily at its customer base, and plans to fend off the impact of price erosion with a hefty €1.2bn (£1.06bn) of recurring annual cost savings by the time 2018 is up.

It certainly needs to. In the first quarter alone, Nokia ploughed through over €2bn of its net cash pile, lobbing €940m (£834m) out as a dividend and a sizeable chunk of cash going to employees in the form of performance-related incentives. Nokia now has €2.144bn (£1.902bn) in net cash and investments, down 46 per cent on the same time last year.

Hidden among the gloom of figures that Nokia insists would be flat, if only it weren't for those pesky currencies, sits the highly profitable licensing group, Nokia Technologies. A €292m (£259m) operating profit on net sales of €361m (£320m) for the quarter compares favourably with €230m (£204m) on €369m (£327m) respectively for the same quarter in 2017.

Nokia's big pile of IP has proven lucrative, with the Finland outfit trousering a none-too-shabby €1.7bn from Apple last year after sueballs were flung in both directions over alleged patent infringements.

With the likes of Ericsson breathing down its neck, certainly as far as 5G is concerned, Nokia is gambling that its work with operators such as T-Mobile, Verizon and France's SFR will pay off with a bulging order book before the year is out. ®

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