Nokia reported an operating profit of $669.3 million in the second quarter, a 77 percent increase from a year ago. In addition, net sales were up 1 percent year-on-year to $6.53 billion.
The company credited the sizable jump in its operating profit to the patent deal it announced with Apple in May. However, CEO Rajeev Suri warned that the company expects market conditions to be more challenging this year than it had previously expected and is forecasting a 3 percent to 5 percent decline in 2017.
Nokia announced in May that as part of its resolution of a multiyear intellectual property dispute with Apple it would become a supplier of IP networking gear to the company and would receive a cash payment from the company. That payment was included in the second quarter earnings.
Nokia’s shares jumped 3.4 percent to $6.38 in mid-day trading, an increase from the previous close of $6.17.
While the equipment maker’s second quarter profitability was strong, the company did report that its network division sales were down 5 percent primarily due to weakness in the mobile sector. “The second quarter showed ongoing challenging market conditions,” said Suri during the investor call.
5G Momentum
Despite the current weakness, Suri said the company is seeing momentum around 5G and anticipates an acceleration in the 5G deployment timeline. “We see some lead customers in the U.S. and China preparing to move earlier on 5G, and that will drive others,” he said, adding that Nokia believes there will be “meaningful” 5G deployments in 2019.
Interestingly, Suri also said the company thinks 5G will be much more than just a small cell play targeted at densifying the network. Instead, the company now believes 5G will be part of the macro network and will be deployed in the low-, mid-, and high-band spectrum. Because of this, Nokia is planning to accelerate its 5G product lines and focus more on R&D. “The pressure is on us to develop features, and we have to have deep R&D capacity,” Suri said.
He also said that the company must continue to strive for product leadership in the 5G area, especially as it believes it is possible to get market share away from a competitor that is struggling. Although he didn’t say which competitor, it is likely Suri was referring to Ericsson.
In the second quarter Ericsson reported worse-than-expected earnings and warned that its operating income could be further impacted by between $360 million to $600 million over the coming year because of customer contracts that will need to be renegotiated.
Nokia also said that it is in the midst of working with customers in North America to replace Alcatel-Lucent equipment with the company’s flagship AirScale radio platform. The goal is to put Nokia equipment into the networks.
Nokia CEO Rajeev Suri speaks to media and analysts at the 2017 Mobile World Congress.
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