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Nokia posts solid Q3 2019 with sales growth & solid profit margin driven by 5G momentum. CEO speak

Nokia has announced its earnings for the third quarter of 2019 and it looks like a solid quarter for Nokia with many positives. Sales growth, solid operating profit margin and string 5G momentum are the key highlights of Q3 2019.

  • Strong performance in Nokia Software, Nokia Enterprise and IP routing
  • 5G momentum continues; 48 deals and 15 live networks launched
  • Dividend payments paused to increase investments in 5G and strategic focus areas and to strengthen cash position
  • Long term target operating margin of 12-14% supported by our end-to-end portfolio, diversification and patent licensing

Check below for earnings highlights.

Earnings highlights:

  • Net sales in Q3 2019 were EUR 5.7 billion, compared to EUR 5.5 billion in Q3 2018. On a constant currency basis, net sales increased 1%. Our solid overall topline performance was driven by improved industry demand and the competitiveness of our end-to-end portfolio, with growth across four out of six regions and all customer types.
  • Non-IFRS diluted EPS in Q3 2019 was EUR 0.05, compared to EUR 0.06 in Q3 2018, primarily driven by lower gross profit in Networks and a net negative fluctuation in financial income and expenses. This was partially offset by higher gross profit in Nokia Software and continued progress related to Nokia’s cost savings program, which resulted in lower operating expenses across Networks, Nokia Software and Nokia Technologies.
  • Reported diluted EPS in Q3 2019 was EUR 0.01, compared to negative EUR 0.02 in Q3 2018, primarily driven by continued progress related to Nokia’s cost savings program and a gain on defined benefit plan amendments, partially offset by higher income taxes.
  • In Q3 2019, net cash and current financial investments decreased sequentially by approximately EUR 160 million. Within this, we generated positive net cash from operating activities, which partially offset cash outflows from investing and financing activities, including the payment of the quarterly dividend.
  • Full year 2019 and full year 2020 outlook lowered primarily due to margin pressure, additional 5G investments and additional digitalization investments.

Nokia CEO Rajiv Suri expressed his pleasure with Nokia’s Q3 performance.

Nokia delivered a solid third quarter, with positive free cash flow; widespread sales growth; solid operating margin; strong performances in Nokia Enterprise, Nokia Software and IP Routing; and good progress towards meeting our 2019 cost reduction goals. We are proud to have launched 15 live 5G networks with customers, including Sprint, Verizon, AT&T and T-Mobile in the US; Vodafone Italy and Zain in Saudi Arabia; as well as SKT, KT and LGU+ in Korea.

Many of our businesses are performing well and we expect Q4 to be strong, with a robust operating margin and an increase in net cash of approximately EUR 1.2 billion. At the same time, some of the risks that we flagged previously related to the initial phase of 5G are now materializing. In particular, our Q3 gross margin was impacted by product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty related to the announced operator merger in North America.

We expect that we will be able to progressively mitigate these issues over the course of next year. To do so, we will increase investment in 5G in order to accelerate product roadmaps and product cost reductions, and in the digitalization of internal processes to improve overall productivity. We will also continue to invest in our enterprise and software businesses, which are developing rapidly and performing well. Given these investments and the risks we see materializing, we are adjusting our targets for full-year 2019 and 2020; and we expect our recovery to drive improvement in our 2021 financial performance relative to 2020.

I am confident that our strategy remains the right one. We continue to focus on leadership in high-performance end-to-end networks with Communication Service Providers; strong growth in enterprise; strengthening our software business; and diversification of licensing into IoT and consumer electronics.

As I look to the future, it is clear to me that Nokia has some unique advantages. We have a powerful, end-to-end portfolio that allows us to benefit from 5G investments across all network domains. We have a demonstrated ability to drive value and cash flow through product leadership. We have successful diversification into enterprise and software well underway. We have a large patent licensing business that is sustainable and cash generative over time, with opportunities to enter new growth segments. We have meaningful opportunities to drive further cost reductions through digitalization and automation.

These advantages give me confidence in our ability to create value for our shareholders and achieve our longer-term operating margin target.

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Nayan
Nayan has more than 10 years of experience of covering Technology and innovations. He is a big Nokia fan and Tech disruptions aficionado. He loves to review new cool gadgets and writing about Android, iOS, Gadgets and general Technology stuff. He has been associated with other well-known Tech sites WinCentral and GadgetOx since long. He currently sports a Lumia 950 XL and Nexus 5X. Other interests include listening to Nu-Metal Hits and Kick-Boxing. Write to him at Email: [email protected]
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