Nokia culls low-margin business ahead of CEO change

Finnish telecom network equipment maker Nokia reported an unexpected rise in its second-quarter underlying profit on lower revenues on Friday, as it reduced low-margin business before a new chief executive takes charge.

Cutting less profitable service business and not winning 5G radio deals in the cut-throat Chinese market helped the company upgrade its earnings outlook for 2020 as new Chief Executive Officer Pekka Lundmark takes over this weekend.

Quarterly revenue fell 11 per cent and the company reduced its market share outlook to underperform from previous guidance of performing in-line with its main markets.

“Our revenue will be lower than the market overall and it does mean it takes into account our prudent provisioning ... with regards to profitability,” outgoing Chief Executive Rajeev Suri told reporters on a call.

The company estimated that COVID-19 reduced net sales by about 500 million euros ($594 million) in the first half.

“We expect that the majority of sales missed in the quarter due to COVID-19 will shift to future periods,” Suri said in a statement.

Nokia’s quarterly revenue fell to 5.09 billion euros, missing the 5.28-billion-euro consensus figure, according to Refinitiv data.

Lagging behind its rivals China’s Huawei and Sweden’s Ericsson in 5G network sales, Nokia said its April-June underlying earnings rose to 0.06 euros per share from 0.05 euros a year ago, beating the 0.03 euros consensus in a Refinitiv poll.

Nokia, which had warned of a weak second quarter due to the virus, upgraded its forecast for 2020 underlying earnings per share to between 0.20 and 0.30 euros from 0.18 to 0.28 euros.

Its Nordic peer Ericsson reported a rise in 5G network sales and software revenue two weeks ago, and also maintained its financial targets for 2020 and 2022.

Suri, who steps down after more than a decade in charge of Nokia and Nokia Siemens Networks, leaves the company to his successor Lundmark in a highly competitive market situation.

The leadership change comes as turbulence prevails in European telecoms markets, with increasing pressure from certain governments for operators to exclude or limit the usage of 5G equipment from Huawei.