Nokia Plunges as Customers Fail to Spend on Faster Networks

Nokia plunged after saying customers aren’t quite ready to increase spending on faster networks and are demanding price cuts, according to Bloomberg.

The company still expects investments in fifth-generation mobile equipment to pick up significantly in the second half, but some customers have so far funded 5G gear without expanding budgets. That’s put pressure on prices, CEO Rajeev Suri said, after Nokia posted a second-quarter earning miss. The stock fell the most in nine months.

The Finnish equipment vendor expects a slump in demand to end when carriers start investing in networks that promise faster download speeds and better capacity, enabling everything from self-driving cars to remote surgery and traffic control. It’s facing tough competition from Chinese rival Huawei and Sweden’s Ericsson. “While we are generally able to offset price reductions with cost erosion over time, it will take some time to catch up,“ Suri said on a conference call with reporters.

In the second quarter, Nokia’s operating profit fell 42 percent to 334 million euros, short of the 374.5 million-euro average of analysts’ estimates. Suri said he expects market conditions to improve further in the second half, particularly in the fourth quarter, Nokia’s seasonally strongest period, as 5G accelerates significantly.

Nokia’s first six months of 2018 contrasts sharply with those of its fierce rival on the other side of the Baltic Sea. Ericsson’s shares have advanced 32 percent this year as CEO Borje Ekholm’s efforts to reposition the company are starting to bear fruit, and the Swedish company’s network sales grew for the first time in years in the second quarter.

Profitability in Nokia’s core networks business declined in the quarter, due to the price pressure as well as more sales of lower-margin services and products. Suri said Nokia’s deal win rate is “very good,“ with “significant“ recent successes in the U.S. and China, key early 5G markets. “Our view about the acceleration of 5G has not changed and we continue to believe that Nokia is well-positioned for the coming technology cycle given the strength of our end-to-end portfolio,“ Suri said.