Nokia Oyj started the first of three phases of a shift in strategy as Chief Executive Officer Pekka Lundmark works to catch up with rival telecommunications equipment manufacturers and capitalize on a ban by some governments on gear made by Huawei Technologies Co.
- Nokia cut its guidance for 2020 and provided new guidance for 2021 of an adjusted operating margin in the range of 7% to 10%. Analysts on average expected a margin 10.6% for next year. It also said it expects to underperform in a declining market.
- Lundmark, who took the top job on Aug. 1, will abandon predecessor Rajeev Suri’s strategy of providing complete network systems, from physical equipment such as antennas and optical cables to software and other services, in a strategy dubbed “end-to-end.” The previous approach was driven partly by the need to integrate the Alcatel purchase, according to analysts.
- The Finnish vendor of telecommunications network equipment on Thursday disclosed third-quarter net sales of 5.29 billion euros ($6.22 billion), less than the average analyst estimate of 5.42 billion euros. Adjusted operating profit came to 486 million euros, missing an estimate for 496 million euros.
- Nokia will now have “a more focused approach, with each of the company’s new business groups having a distinct role in the overall strategy,” the company said in the statement. The company will “prioritize technology leadership” and sees an opportunity to move into higher-value “network-as-a-service” business models.
- Nokia is seeking to catch up with rivals Ericsson AB and Huawei after early stumbles with 5G gear and trouble integrating its giant Alcatel-Lucent purchase from 2016. It paused its dividend a year ago to funnel more cash to research and development, and said payouts are likely to resume once its net cash position improves to about 2 billion euros.
- “Our goal is to better align with the needs of our customers, and through that increase accountability, reduce complexity and improve cost-efficiency,” Lundmark said in the statement. “Going forward, we will have a more rigorous approach to capital allocation and will invest to win in those segments where we choose to compete.”
- For 2020 Nokia now sees adjusted EPS of 20 euro cents to 26 euro cents, compared with 20 cents to 30 cents previously, and an adjusted operating margin of 8% to 10%, compared with an earlier 8% to 11%.
- Nokia trades at about 14 times its estimated earnings per share for the coming year. The shares are up 4.6% in the year to Wednesday, compared with a 22% decline for the Stoxx Europe 600 Telecommunications index.
- Read the strategy statement here.
- Get the third-quarter earnings numbers here.
- Nokia will announce its new strategy in three phases; more information to be shared on December 16, 2020, and at Capital Markets Day on March 18, 2021
©2020 Bloomberg L.P.