Connect with us

International Circuit

Nokia Corporation interim report for Q1

Posted by Nokia

Improved margins as transformation and product cost reduction efforts take hold

  • Confidence in resilient customer base and strong liquidity position
  • 5G deal momentum continues, with 70 commercial deals and 21 live networks
  • Strong growth in Nokia Software and Nokia Enterprise
  • Within previously provided Outlook ranges for full year 2020, adjusted the non-IFRS mid-points for EPS to EUR 0.23 and operating margin to 9.0%
  • Majority of COVID-19 impact expected in Q2; continue to expect a seasonally strong second half

Rajeev Suri, President and CEO, on Q1 results

Nokia’s solid first quarter results showed broad year-on-year profitability improvements as our transformation and product cost reduction efforts started to take hold. On a year-on-year basis, group-level non-IFRS operating margin was up by 3.6 percentage points; Networks gross margin increased by 3.5 percentage points; Nokia Software had an excellent quarter with sharp margin improvements and strong momentum with customers in North America; and, Nokia Enterprise delivered double-digit sales growth.

As I noted last quarter, we continue to have a sharp focus on Mobile Access and cash generation and saw good progress in both areas in the first quarter. “5G powered by ReefShark” shipments continue to increase and product cost reductions are proceeding well. We also announced some leading new solutions in the quarter, including a unique approach to dynamic spectrum sharing that is in test mode with select major customers today, and is expected to be available in volume over the summer, in line with the availability of DSS-capable mobile devices. On the services side, ongoing execution improvements drove improved year-on-year profitability. We also enhanced our total cash position to €6.3 billion, while net cash showed an expected seasonal decline to €1.3 billion.

These improvements are, of course, coming at a time of unprecedented change, given the impact of COVID-19. Our top focus areas are protecting our employees, maintaining critical network infrastructure for customers, and ensuring we have a strong cash position. In Q1, we saw a top line impact from COVID-19 issues of approximately €200 million, largely the result of supply issues associated with disruptions in China.

We are adjusting the mid-points within our previously disclosed Outlook ranges for full-year 2020 to reflect the increased risks and uncertainty presented by the ongoing COVID-19 situation. We expect the majority of this COVID-19 impact to be in Q2 and believe that our industry is fairly resilient to the crisis, although not immune.

We did not see a decline in demand in the first quarter. As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans. Pleasingly, despite the majority of our R&D employees working from home, we have not seen any impact on our roadmaps, and, in fact, some key software releases are proceeding ahead of schedule. Additionally, we saw a massive increase in network capacity demands.

In close, Nokia’s vision of creating the technology to connect the world has never been more important than today. I want to thank our employees for their incredible resilience, ongoing support for each other whilst working from home, and their commitment to continued delivery of critical networks during this time. Equally, I want to thank our customers, suppliers, communities and the entire Nokia extended “family” for their ongoing support.


  • Non-IFRS net sales in Q1 2020 were EUR 4.9bn, compared to EUR 5.1bn in Q1 2019. Reported net sales in Q1 2020 were EUR 4.9bn, compared to EUR 5.0bn in Q1 2019. On a constant currency basis, non-IFRS net sales decreased 4% and reported net sales decreased 3%. Excluding one-time licensing net sales in Q1 2020 and Q1 2019, net sales decreased 2% on both a non-IFRS and reported basis. This reflected good operational performance and the competitiveness of our offerings, given the negative impact of COVID-19 on the overall market environment. We estimate that COVID-19 had an approximately EUR 200 million negative impact on our Q1 2020 net sales, primarily due to supply chain challenges; with these net sales expected to be shifted to future periods, rather than being lost.
  • Non-IFRS diluted EPS in Q1 2020 was EUR 0.01, compared to negative EUR 0.02 in Q1 2019, primarily driven by higher gross profit in Mobile Access within Networks and Nokia Software, continued progress related to our cost savings program and a net positive fluctuation in financial income and expenses. This was partially offset by higher investments in 5G R&D to accelerate our product roadmaps and cost competitiveness in Mobile Access, income taxes and a net negative fluctuation in Nokia’s venture fund investments.
  • Reported diluted EPS in Q1 2020 was negative EUR 0.02, compared to negative EUR 0.08 in Q1 2019, primarily driven by higher gross profit in Mobile Access within Networks and Nokia Software, lower amortization of acquired intangible assets and our continued progress related to our cost savings program. This was partially offset by higher investments in 5G R&D to accelerate our product roadmaps and cost competitiveness in Mobile Access, income taxes and a net negative fluctuation in Nokia’s venture fund investments.
  • In Q1 2020, net cash and current financial investments (“net cash”) decreased sequentially by approximately EUR 0.4 billion, resulting in a net cash balance of approximately EUR 1.3 billion. Total cash and current financial investments (“total cash”) increased sequentially by EUR 0.3 billion, resulting in a total cash balance of approximately EUR 6.3 billion. This reflected strong cash performance in Q1 2020, which is a seasonally weak quarter. During Q1, we prudently strengthened our liquidity position by drawing on the EUR 500 million facility we had signed with European Investment Bank in 2018. Additionally, we have a EUR 1.5 billion revolving credit facility that has not been drawn upon to date, and we continue to explore prudent opportunities to further strengthen our liquidity.


The COVID-19 crisis has made vividly clear the critical importance of connectivity to keep society functioning. We feel a sense of duty to our customers and the communities they serve to keep vital communication networks running and accommodate expanded needs as usage reaches unprecedented levels.

We are continuing to advance our 5G roadmap and product evolution, as planned, and our COVID-19 mitigation actions in R&D have been very successful. We believe we remain on track with our plans to drive progressive improvement over the course of 2020.

Health and safety

Naturally, Nokia’s first focus during the COVID-19 crisis is to our employees. We are working around the clock to keep our people safe. We have put in place strict protocols for Nokia facilities and provided clear advice to our employees about how they can mitigate the risks of COVID-19 in situations where they have to go about critical work.

To date we have taken a range of steps, including banning international travel for Nokia employees, except for strictly-defined ‘critical’ reasons; closing all our facilities to all visitors, with the exception of people engaged in essential maintenance and services, and asking our staff to work from home wherever possible. We started implementing these measures in some regions in January already and have updated guidance as the situation has developed.

Other actions include enhanced building hygiene measures across our facilities, and clear advice on how staff can mitigate risks by maintaining good personal hygiene. We are also providing guidance on how staff can maintain a healthy work-life balance and look after their physical and mental well-being.

To protect the health and safety of our employees, shareholders and other stakeholders, Nokia’s Board of Directors resolved to cancel the Annual General Meeting initially scheduled to be held on April 8, 2020. The Board has subsequently convened a new AGM under a temporary Finnish COVID-19 legislation to be held on May 27, 2020 without shareholders attending the meeting in person.

Supporting the essential services our customers provide

The products and services that we provide have never been more critical in enabling the world to continue to function in an orderly way. We are providing the capacity and continuity to vital medical, social and financial systems that are experiencing extreme stress. We continue to work closely with all our customers, to ensure that the changing needs and requirements at this time are well understood and that we respond appropriately to them.

Telecom infrastructure is an essential service in most jurisdictions. Most networks see 30 to 45 percent traffic volume growth over a year, but in just one month – from mid-February to mid-March – Nokia saw a 20 to 40 percent peak increase in lockdown-impacted regions through our operator customer base. We are working with our customers to provide real-time and granular information about their networks and enabling them to meet increases in demand and expand capacity where needed.

Nokia has a global manufacturing footprint designed for optimized global supply, and to mitigate against risks such as local disruptive events, transportation capacity problems, and political risks. Our supply network consists of 25 factories around the globe and six hubs for customer fulfillment. As a result, we are not dependent on one location or entity. We have also established a global command center to manage the supply chain challenges arising from the outbreak; and we are ready to activate relevant business continuity plans should the situation in any part of our organization require this.

Doing our part to fight the pandemic

We also feel another sense of duty – to the societies where Nokia operates. As a global company, we have a duty to be part of the global fight against this pandemic. Therefore, Nokia has launched a Coronavirus Global Donation Fund.

This fund is intended to support charities, hospitals, health clinics, and other frontline non-governmental organizations who are leading the fight against COVID-19 and trying to mitigate its effect on communities. Financial assistance will be targeted to where it is most needed in countries across the world. Country-specific donations will be made to grassroots organizations from healthcare to childcare, to elderly rehabilitation, to community support services.

These actions demonstrate our strong commitment to supporting global efforts to end the pandemic and overcoming the disruption and challenges we currently face.


Full Year 2020

Long term (3 to 5 years)


Networks and Nokia Software are expected to be influenced by factors including:

  • Our expectation that we will perform approximately in-line with our primary addressable market, which is expected to decline on a constant currency basis in full year 2020, excluding China (This change is primarily due to the COVID-19 impact we expect in Q2 and is an update to earlier commentary for our primary addressable market 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;
  • Our expectation for seasonality in 2020 to be similar to 2019, with the exception of Q2, during which we expect to see the majority of the COVID-19 impact. As in 2019, we expect the majority of operating profit and free cash flow to be generated in the fourth quarter (This is an update to earlier commentary for seasonality in 2020 to be similar to 2019, with the majority of operating profit and free cash flow to be generated in the fourth quarter);
  • Potential risks and uncertainties related to the scope and duration of the COVID-19 impact and the pace and shape of the economic recovery following the pandemic (This is an update to earlier commentary for a temporary disruption, particularly in our supply chain, due to the coronavirus outbreak);
  • Competitive intensity, which is particularly impacting Mobile Access and is expected to continue at a high level in full year 2020, as some competitors seek to take share in the early stage of 5G;
  • Our expectation that we will accelerate our product roadmaps and cost competitiveness through additional 5G investments in 2020, thereby enabling us to drive product cost reductions and maintain the necessary scale to be competitive;
  • Our expectation that we will drive improvements in automation and productivity through additional digitalization investments in 2020;
  • Customer demand could weaken and risk could increase further in India, after the country’s Supreme Court upheld a ruling that telecoms companies must pay retroactive license and spectrum fees;
  • Opportunities and risks in North America following the completion of a merger, and, more broadly, the potential for temporary capital expenditure constraints due to potential mergers or acquisitions by our customers (This is an update to earlier commentary for temporary capital expenditure constraints in North America related to customer merger activity, as well as other potential mergers or acquisitions by our customers);
  • The timing of completions and acceptances of certain projects;
  • Some customers are reassessing their vendors in light of security concerns, creating near-term pressure to invest in order to secure long-term benefits;
  • Our expectation that we will improve our R&D productivity and reduce support function costs through the successful execution of our cost savings program, which is explained in more detail in the Cost savings program section of this report;
  • Our product and regional mix, including the impact of the high cost level associated with our first generation 5G products; and
  • Macroeconomic, industry and competitive dynamics.

Nokia Technologies is expected to be influenced by factors including:

  • The timing and value of new and existing patent licensing agreements with smartphone vendors, automotive companies and consumer electronics companies;
  • Results in brand and technology licensing;
  • Costs to protect and enforce our intellectual property rights; and
  • The regulatory landscape.

Additionally, our outlook is based on the following assumptions:

  • Nokia’s outlook for positive recurring free cash flow is expected to be supported by an improvement in net working capital performance and improved operational results, partially offset by a more substantial difference in 2020 between profit and free cash flow in Nokia Technologies;
  • Non-IFRS financial income and expenses are expected to be an expense of approximately EUR 350 million in full year 2020 and per annum over the longer-term;
  • Non-IFRS income taxes are expected at a rate of approximately 26% in full year 2020 and approximately 25% over the longer-term, subject to the absolute level of profits, regional profit mix and changes to our operating model;
  • Cash outflows related to income taxes are expected to be approximately EUR 450 million in full year 2020 and per annum over the longer term until our US or Finnish deferred tax assets are fully utilized; and
  • Capital expenditures are expected to be approximately EUR 600 million in full year 2020 and per annum over the longer-term.―CT Bureau
Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2024 Communications Today

error: Content is protected !!