Nokia shows Ericsson how it’s done

Both were giants in the industry, both were eclipsed by Huawei and both are scrambling to reinvent themselves, but only one is showing tenuous signs of recovery.

For the second quarter of 2017, Nokia has reported operating profits of €574 million, up 73% year-on-year, though it has warned the market sales are expected to drop by 3% to 5% over the course of 2017. It’s a real mixed bag for Nokia, which has some very promising business units making some good cash, but the telco network equipment area is proving to be a tough cookie. Group sales decreased 1% to €5.63 billion.

“We expect our primary addressable market with communication service providers to be slightly more challenging in 2017 than earlier forecast,” said CEO Rajeev Suri. “We now expect a decline in the market in the range of 3-5%, versus our earlier view of a low-single digit decline. In addition, we continue to expect our Networks sales to perform in line with the market.

“In summary, a good second quarter, some challenges ahead this year, but also reasons to be optimistic about Nokia’s ability to deliver.”

Despite tough market conditions, Nokia has certainly shown a bit more than its Swedish neighbours. The $16 billion acquisition of Alcatel Lucent has continued to pay dividends as it continues to broaden its product portfolio in fixed line. Less of a streamlined focus on mobile now the 4G phenomenon would appear to have peaked, is making the purchase seem like a bit of a bargain in hindsight. Meaningful contributions from the 5G euphoria are not expected until 2019, so there might be another couple of mixed earnings calls on the horizon.

One boost to the bank account which investors should not become comfortable with is the patent settlement with Apple. This almost certainly assisted with the profit uplift, primarily because such a settlement was unexpected. Apple is not usually reasonable when it comes to disputes, preferring to measure the might of its own legal team in the courts, but this must have been a pleasant surprise for the Nokia team.

And while the management team will surely realise it’s not job done yet, there must be a glance across the border and a cheeky little smile at the Ericsson struggles.