Nokia has announced its earnings for the first quarter of 2019 and while net sales has grown by 2% over Q1 2018 sales, the company has reported net loss of EUR 59 million for the quarter. Admitting that Q1 2019 is weak in line with their expectations, Nokia now expects commercial 5G wins (36 so far) to push topline and margins over the rest of the year 2019.
This is what Nokia CEO has to say about Q1 2019,
Q1 was a weak quarter for Nokia. We expected that it would be, and the outcome has not changed our perspective on the full year. We are confident that those issues that drove weakness in our results will ease over the remainder of the year. While overall risks have increased slightly, we continue to see positive developments and are maintaining our guidance for the full year.
As the year progresses, we expect meaningful topline and margin improvements. 5G revenues are expected to grow sharply, particularly in the second half of the year, driven by our 36 commercial wins to date. Global services profitability should improve as we recover in a handful of large rollout projects, IP routing is now firmly back to growth given our product leadership, and optical networks continues its long run of growth. We are also seeing good underlying momentum in our strategic focus areas of software and enterprise, and we are moving steadily forward on our path to build a strong licensing business that is sustainable for the long-term.
In terms of risks, one factor is our slow start to the year. In addition, competitive intensity has slightly increased in certain accounts as some competitors seek to be more commercially aggressive in the early stages of 5G and as some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity. We will continue to take a balanced view, and are prepared to invest prudently in cases where there is the right longer-term profitability profile. We are also progressing well with our previously announced EUR 700 million cost savings program.
In short, an expectedly weak Q1, but continued reason for optimism as the year progresses.
Check below for earnings highlights.
Earnings highlights:
- Nokia reported net sales grew approximately 2%. Nokia non-IFRS net sales grew approximately 3%, due to the exclusion of EUR 22 million of restructuring and associated charges. On a constant currency basis, Nokia reported net sales decreased approximately 2% and Nokia non-IFRS net sales decreased approximately 1%.
- Nokia non-IFRS and reported net sales, excluding approximately EUR 40 million (EUR 10 million in Q1 2018) of one-time licensing net sales in Q1 2019, both grew by approximately 2%, as our customers added network capacity in preparation for the continued rise in broadband traffic driven by 5G. Our solid topline in Q1 2019 reflected the competitiveness of our end-to-end portfolio, with particular strength in IP routing, as well as an improving industry environment.
- Due to the evolving readiness of the 5G ecosystem, in Q1 2019, we were unable to recognize approximately EUR 200 million of net sales related to 5G deliveries mainly in North America, which we expect to recognize in full before the end of 2019.
- Networks and Nokia Software continued to see strong customer engagement related to 5G across multiple parts of our portfolio, including radio, cloud core, transport, IP routing and network agnostic software. In Q1 2019, we continued to make progress with our strategy to diversify and grow, with solid results in Nokia Software and with enterprise customers.
- In Nokia Technologies, the growth in net sales was primarily due to one-time licensing net sales in Q1 2019. On a recurring basis, net sales declined by 4%.
- The growth in net sales to enterprise customers was primarily due to strong demand for our market-leading IP routing portfolio and, to a lesser extent, particularly strong percentage growth in private LTE and 5G wireless networks for industrial applications. We see strong momentum in industries like utilities, oil, gas, mines, manufacturing and logistics, as well as the public sector. Excluding the third party integration business that we are exiting, net sales to enterprise customers grew 8% on a reported basis, and 5% on a constant currency basis.
- The decline in Nokia gross profit was primarily attributable to Networks, which was negatively affected by broad-based gross margin erosion in Mobile Access.
- Nokia non-IFRS diluted EPS decreased by EUR 0.04, primarily due to lower gross profit, partially offset by income tax benefits compared to income tax expenses in the year-ago quarter.
- Nokia reported diluted EPS decreased by EUR 0.02, primarily driven by lower gross profit, partially offset by a net positive fluctuation in financial income and expenses, higher income tax benefits and lower operating expenses.
Read the full Q1 2019 earnings report here.
