-=Nokia (NOK) reported earnings on Thur 24 Oct 19 (b/o)

Nokia reports EPS in-line, beats on revs; lowers FY19 and FY20 EPS guidance; pauses dividend

Reports Q3 (Sep) earnings of 0.05 per share, in-line with the S&P Capital IQ Consensus of 0.05; revenues rose 4.2% year/year to 5.69 bln vs the 5.59 bln S&P Capital IQ Consensus.

Co issues in-line guidance for FY19, sees EPS of eUR0.18-0.24 vs. 0.23 S&P Capital IQ Consensus, updated from EUR 0.25 - 0.29 prior.

Co issues downside guidance for FY20, sees EPS of eUR0.20-0.30 vs. 0.36 S&P Capital IQ Consensus, updated from EUR 0.37 - 0.42 prior.

On October 24, 2019, the Board resolved to not distribute the third and fourth quarterly instalments of the dividend for the financial year 2018, in order to: a) guarantee Nokia's ability to increase 5G investments, b) continue investing in growth in strategic focus areas of enterprise and software and c) strengthen Nokia's cash position. This is in accordance with Nokia's dividend policy, which states that dividend decisions are made taking into account Nokia's cash position and expected cash flow generation. Over the long term, Nokia continues to target to deliver an earnings-based dividend. The Board will seek a dividend authorization from the next Annual General Meeting, and will continue to review dividend distributions on a quarterly basis. The Board expects to resume dividend distributions after Nokia's net cash position improves to approximately EUR 2 billion.

Nokia’s share price tanked by nearly 25% at one point today—the biggest daily drop since at least 1991—after the Finnish telecom equipment vendor announced a sudden and acute shrinking of profit in its latest quarter. Slashing its profit outlook through 2020, Nokia said it would suspend its dividend for the next six months.

Making fancy new equipment for 5G installations is expensive, said CEO Rajeev Suri in published remarks (pdf). He also cited trouble raising prices—especially in China, where its sales have slumped—and the expense of absorbing Alcatel-Lucent, the French telecom equipment giant Nokia bought in 2016.

The beginning buildout of 5G—as this newest generation of mobile wireless network technology is known—was supposed to be a bonanza for Nokia. What gives?

Nokia’s challenges with 5G and Alcatel-Lucent are telling, as is the cratering of its network R&D, which fell 7% versus the same quarter a year ago. Its struggles encapsulate the intrinsic mismatch of corporate oligopoly and innovation.

Though hard to tell from its glum earnings, Nokia very literally dominates the telecom equipment market. It has only two major competitors: Stockholm-based Ericsson, and Huawei, which is headquartered in Shenzhen.

Unlike Ericsson, Nokia boasts an end-to-end suite of equipment and services. And, of course, Huawei has been sidelined from many key markets by government suspicious of possible ties to the Chinese government, and battered by US policies threatening to block its use of American technology as components in its systems.