Nokia gives thumbs up for Q3 but warns of further ‘cost efficiencies’

Nokia has released its financial results for the last three months, which look pretty positive, though job losses have put a slight dampener on the party.

Net sales for the last three months stood at €5.4 billion, slightly down on the same period in 2017, though when currency fluctuations are taken into account, it does seem Nokia is navigating the sluggish telco industry fairly effectively. The management team promised an improved performance towards the end of the year, and it seems to be delivering on this prediction. Operating losses have been narrowed and profit margin is heading in the right direction.

“Nokia’s third-quarter results validate our earlier view that conditions would improve in the second half of 2018,” said CEO Rajeev Suri. “This was particularly evident in our excellent momentum in orders, growth across all five of our Networks business groups, and improved profitability compared to the first half of the year. Despite some risks related to short-term delays in project timing and product deliveries, we remain on track to deliver on our full-year guidance.”

While the results are not revolutionary, this is the telco industry we are talking about. The industry has been lulling between 4G and 5G investment cycles, though with new 5G contracts announced during the quarter the tide might be turning.

“We see the industry improving and accelerating and saw evidence of this in the quarter,” said CFO Kristian Pullola. “Orders growth has driven by the first 5G bookings and all five networks business groups, particularly helped by strong demand in North America and Nokia software.”

These are positive signs, though the emergence of another ‘cost efficiency’ strategy does take away some of the glimmer. Pullola highlighted there are requirements to ensure the business is as lean and efficient as you would expect, though the details are thin.

“We’ve identified the bigger buckets to go after the savings to meet the €700 million target, but now it’s about taking it into the field and honing into the specifics,” said Pullola.

Part of this strategy will focus on the Alcatel Lucent acquisition, realising the benefits of scaled buying power by overhauling the procurement process and harmonizing the two businesses, though job losses are unavoidable. The team is not putting a number next to this aspect of the strategy, though there are reports it will be in the thousands.

This of course is only the latest installment of cost-saving strategies from the business, with a previous edition aiming for €1.2 billion in cost-saving by the end of 2018. With an additional iteration of this plan, some might come to the conclusion pervious schemes have failed in delivering the desired impact on profitability and operations.

That said, investors don’t seem to be spooked by the news with only a minor downturn in share price. Nokia has reaffirmed it is still on course to meet full-year guidance and has done a pretty good job of communicating the difficulties in the industry to investors; expectations do seem to have been managed effectively.