5G can’t come soon enough for Nokia as shares plunge on weak 2018 outlook

Revenues might be down, losses widening and customer appetites weak, but Nokia CEO Rajeev Suri stands tall as the eye is set firmly onto the 5G horizon.

Looking at the quarterly revenues, it is pretty tough reading. Net sales declined by 7% year-on-year to €5.537 billion for the quarter, with the core networks business dropping 9% to €4.823 billion. The poster child of the networks team, Ultra Broadband Networks took the biggest of the blows with a year-on-year decline of 17% to €2.099 billion for the quarter.

The Technologies business unit was the only saving grace with a 37% lift compared to the same period in 2016, but considering sales here only account for 8.7% of the total revenues, it doesn’t appear to be much consolation.

Despite the majority of the business heading one direction, the team is bullish, confident the performance is a positive one. Unfortunately the market seems to disagree; Nokia share price took a 16% turn for the worse in afterhours trading. Its prediction the telecoms space is going to tank between 2-5% over 2018 is not exactly going to help the situation either. The 5G euphoria cannot seemingly come soon enough for the Finns.

“As the market transitions to 5G, I believe that the benefits of our portfolio will become even more apparent given that 5G is about much more than Radio,” said Suri.

“It requires Cloud core, IP routing, transport of many kinds, fixed wireless access, Software-Defined Networking and more – and Nokia is one of the very few companies that is able to meet all those needs.”

There are countless companies around the world who are holding their breath waiting for the promise of 5G to start paying out, and it would appear Nokia is one of those turning a bit blue in the face. The decline has been blamed on challenging market conditions, primarily in China and North America, though if the team thinks it is going to be easier in the world of 5G, they might have a rude awakening. Budgets will be bigger, but its competitors are eyeing up the same bundles of cash.

One of the strategies to combat this pain is to broaden its customer base beyond its traditional playground of CSPs. This seems to be having some minor successes, as the team brought on 60 new customers across the quarter, but whether this is a big enough number remains to be seen. By entering new markets, Nokia may well become a competitor to some of its own customers; who knows what impact this diversification strategy will have on its relationship with its traditional customers.

Unfortunately for Nokia, things are not going to get any easier. Confidence in the team will be tested, as shareholders will have to get use to the idea this is probably going to be the story for the foreseeable future. Reflecting on the current quarter, Nokia has decided to update its forecast for the full-year, believing revenues will decline by 4-5% compared to 2016, with 2018 demonstrating a decline of 2-5%.

With demand weakening for 4G, and the main cash influx from 5G still a couple of years off, dark days are only going to get gloomier.

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