Operational challenges at its largest business unit hit third-quarter Nokia results, with the vendor’s forward-looking warnings sending investors running for the hills.
First the numbers: Nokia’s third quarter revenues dropped 7 percent year-over-year to $6.4 billion. The company’s Network Business, which is its largest business unit, was down 9 percent year-over-year. The company’s Ultra Broadband business, which is its second largest unit, was down 17 percent.
Net losses across the company increased 43 percent year-over-year to $222.2 million, with losses per share increasing a similar amount to a loss of $.03 per share.
Investors took the news to heart, with Nokia’s stock trading down more than 19 percent early Thursday. Trading volume a couple of hours into the day was already at more than quadruple its average amount for a full day.
Continued Mobile Network Pressure
Nokia CEO Rajeev Suri said the company experienced operational issues at its Mobile Networks business due to an “extraordinarily high workload.” He explained that this was linked to swapping out some equipment that had been deployed by Alcatel-Lucent — which Nokia has since acquired — that did not match current operator needs or the same feature set of Nokia’s own equipment.
“Given this situation, we have seen some issues with the time taken to converge some products that have, unfortunately, impacted a small number of customers,” Suri said in a statement. “As a result, Mobile Networks has experienced both revenue pressure and an increase in expected network equipment swap costs.”
Suri added that he expected those swaps to eventually be fiscally positive for Nokia as it was now in the deployment phase of those plans and there was potential to sell new features on the updated equipment.
The Mobile Networks business also impacted Nokia’s work with deploying applications and analytics platforms.
Suri said the company expects further pressure for its Mobile Network business through 2018, with an expected overall decline of between 2 percent and 5 percent. Suri cited ongoing technology transitions; increased competitive pressure from Chinese vendors; and potential consolidation among its operator customers, which he said was mostly a North America issue.
Nokia’s Mobile Networks business is also on track for additional investments to “maintain product leadership,” though Suri noted the company remained committed to squeezing out $1.4 billion in cost savings for 2018.
“These savings come at a slightly higher cost than previously expected, and we continue to assess opportunities to deliver further savings in the area of cost-of-goods sold,” Suri said.
During the company’s surprisingly robust Q2 earnings call, Suri said that he expected market conditions to be more challenging this year than it had previously expected. The company at that time forecast a 3 percent to 5 percent drop in business for the full year.
Nokia, like other vendors, is being impacted by a lull in network deployments. Most larger operators have finished their 4G LTE deployments and are now waiting on standards-based 5G equipment.
Vendors are attempting to fill in that gap by offering so-called “5G-ready” or “pre-5G” equipment. Nokia earlier this week unveiled a new charging software suite it claims is cloud-native and 5G ready.
The vendor last week struck a deal with Amazon Web Services (AWS) to take advantage of Nokia’s work in wireless, wireline, and 5G technologies, and AWS’ extensive cloud expertise. The firms said they will be able to help each other and their enterprise and service provider customers.
“As the market transitions to 5G, I believe that the benefits of our portfolio will become even more apparent given that 5G is about much more than radio,” Suri said. “It requires cloud core, IP routing, transport of many kinds, fixed wireless access, software-defined networking (SDN), and more — and Nokia is one of the very few companies that is able to meet all those needs.”