Nokia reports on ‘challenging’ 2019, puts focus on 5G chips for 2020

Rajeev Suri, Nokia’s president and CEO, said Nokia’s fourth quarter 2019 results were a strong end to “a challenging year.” For its Q4 2019 the company posted a profit of $618 million, up from $223 million in Q4 2018. Today, the company’s stock is trading at about $4, compared to a year ago when it was trading at about $6.15.

In terms of its challenges, Suri was referring to the fact that the company’s stock tanked in 2019, losing almost half its value from the beginning of the year through November. The company largely attributed its problems to the fact that it had chosen a certain type of 5G chipset that turned out to be overly expensive. 

On its third quarter 2019 earnings call, Nokia acknowledged that its 5G profit margins were dampened by the high cost of its “ReefShark” chipset. Nokia announced during that call that it was pivoting to a cheaper type of 5G chipset and increasing its SoC research and development.

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And in an effort to rectify its cash problem, Nokia announced on its Q3 2019 earnings call that it was suspending its dividend until further notice.

In today’s earnings announcement Suri said, “We recognize that we have faced challenges in mobile access and in cash generation. We will have a sharp focus on these two areas over the course of 2020. In mobile access, we expect improvements to be driven by increasing shipments of our ‘5G Powered by ReefShark’ portfolio; product cost reductions; better commercial management; and strengthened operational performance in services.”

In terms of the dividend, Nokia expects to resume dividend distributions after its net cash position increases to $2.2 billion, which might happen after the third quarter 2020.

Suri said Nokia plans to provide quarterly updates on the proportion of its 5G shipments that are powered by ReefShark in order to show its progress in driving 5G product cost reductions. “These new products made up approximately 10% of our 5G product shipments in the fourth quarter 2019, and we expect that percentage to increase progressively over the course of 2020, ending the year at more than 35%,” he said. “We expect to end 2021 at approximately 70%, and to essentially complete this transition in 2022.”

On the company’s investor call, Suri said, “We have increased our SoC R&D capacity by about 60% over the past year, and we’ll continue to ramp up in 2020. And for 2020, we have three ReefShark SoC’s under development.”

Nokia also reiterated that its 5G deal momentum is continuing with 66 commercial deals and 19 live networks.

RELATED: Nokia counts 63 commercial 5G deals to kick off 2020

In terms of its guidance for 2020, Nokia said it expects performance to be flat, excluding China. “We have decided to exclude China, given that pursuing market share in China presents significant profitability challenges, and the region has some unique market dynamics,” stated a footnote in Nokia’s financials. 

On the earnings call, Suri said, “We’re not turning our back on China; I want to be very clear about that. We are trying to change our business mix in China. We want to sell more to webscale players, to state-owned enterprises, and with the operators we want to change the business mix towards a higher proportion of core, routing, fixed access, naturally be in the game in 4G, as well as transport. With needs to make sense to us on a three- to four-year basis.”