Nokia starts new cost reductions and relies on 5G to increase profits

HELSINKI (Reuters) – Nokia telecom network equipment maker Nokia launched a new cost-cutting program Thursday, reiterating an ambitious profit forecast, saying operators' demand for next-generation 5G networks will accelerate. from here the end of the year.

The networking industry – dominated by Nokia, Swedish Ericsson and Chinese Huawei [HWT.UL] – suffered years of slowing demand for existing 4G networks and growing investor doubts about the ability of 5G contracts to improve profitability this year.

The Finnish company, which also announced a decline in its quarterly earnings, said it was targeting annual cost savings of 700 million euros ($ 799 million) by the end of 2020 , without specifying the magnitude of the planned job cuts.

It has not yet completed its previous cost savings of 1.2 billion euros, launched after its acquisition in 2016 of the French-American company Alcatel-Lucent.

"We are making progress, but we still have work to do to make the margins of our network be where we would like them to be," said CEO Rajeev Suri, at a news conference. conference call.

He reiterated that Nokia's network activities should generate an annual operating margin of 6-9%. The margin for the first nine months is only 2.6%.

"Despite some risks of short-term delays in project schedules and product deliveries, we remain on track to meet our forecasts for the full year," he added.

As evidence of the rootedness of the 5G cycle, Nokia signed a $ 3.5 billion contract in July to provide the new network equipment to the US mobile operator T-Mobile.

In the third quarter, Nokia's operating profit was € 487 million, down 27% year-on-year, in line with analysts' average forecast of € 492 million. by Reuters. The profit made a year ago had been stimulated by a catch-up license payment.

More than half of the revenues were generated by Nokia's highly profitable patenting business, a legacy in Nokia's history as the leading mobile phone manufacturer.

Nokia also announced Thursday an extension of its patent license agreement with Samsung.

The company's shares fell by 1% at the beginning of trading.

"Sales in the networks are growing, which indicates that the market is recovering … I think the fourth quarter will be very strong," said Mikael Rautanen, an analyst at Inderes Equity Research, which has an "accumulated" rating on the market. title.

"But there is a small risk of warning about profits for the rest of the year."