Nokia Lowers 2020 Forecasts Amid Supply Chain Disruptions

(Bloomberg) --

Nokia Oyj lowered expectations for 2020 results as it faces struggles to get its equipment to customers amid the coronavirus pandemic while some telecommunication carriers postpone investment.

• The Finnish company’s first-quarter net sales fell 2.4% from a year earlier, to 4.91 billion euros ($5.3 billion). It expects diluted earnings per share of 0.23 euro cents versus a previous projection for 0.25 euro cents. The margin of error is the same, at plus or minus 5 cents.
• It also sees an operating margin of 9% plus or minus 1.5 percentage points, against a previous midpoint of 9.5%.

Key Insights

• As the virus situation develops, “an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans,” Chief Executive Officer Rajeev Suri said in the statement.
• The company didn’t see a drop in demand in the first quarter, and said network traffic volume increased 20% to 40% from mid-February to mid-March in lockdown-impacted regions.
• Nokia’s comments follow Ericsson’s remarks last week that the pandemic is making it harder to deliver its services and Europe risks falling further behind on upgrades to the latest cellular technologies because of coronavirus lockdowns, even though rollouts are continuing in China and the U.S.
• After some early missteps, Nokia is phasing out expensive 5G components that threatened the Finnish company’s margins and competitiveness. New, more cost-efficient products made up about 17% of 5G product shipments in the first three months of the year, up from 10% in the previous quarter.

Market Context

• Nokia shares have declined 1% in the year to Wednesday. Shares rose 7.5% on April 16, after reports that the company was working with an investment bank to defend itself from a hostile takeover.

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