Nokia’s Q2 and half year results exceeded expected profits

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The Finnish equipment vendor improved cash generation, and said these were “clear indications of a return to strength in mobile radio”.

The firm also increased earnings-per-share year on year, despite the pandemic, seeing its profits rise 22% to €316 million in Q2 despite quarterly revenues falling by 11% or €5.1 billion.

Nokia has had a low share price and endured much criticism for starting late with its 5G technologies compared to its two greatest rivals, Ericsson and Huawei.

A statement from Nokia’s outgoing CEO and President, Rajeev Suri, read, “These results show that our execution has improved as planned and that we are well positioned to end the year with a significantly stronger financial position.

"As a result, we are adjusting upward both the midpoint of our full-year 2020 non-IFRS EPS [non- International Financial Reporting Standards earnings per share] and operating margin guidance within our previously disclosed outlook ranges.”
 
Profitability gains in Q2 were helped by 4.5% year-on-year improvement in Networks’ gross margin, building on a 3.5% gain in Q1. This drove Nokia non-IFRS gross margin to 39.6%.

Enterprise up

Nokia Enterprise also grew year-on-year constant currency sales by 18% compared to one year ago and expanded margins.
 
However, Nokia’s revenue was down in Q2, mostly as a result of COVID-19 but also due to a sharp decline in China “based on the prudent approach we have taken in that market,” the statement noted.

It added, “We also saw a reduction driven by our proactive steps to reduce the volume of low margin services business. We expect that the majority of sales missed in the quarter due to COVID-19 will shift to future periods.”

Free cash flow in the quarter was €265 million, versus negative €1.0 billion a year ago, and Nokia ended Q2 with €1.6 billion of net cash, and €7.5 billion in total cash.

5G progress

Suri pointed to 83 5G deals, and continuing momentum with a software upgrade that allows millions of Nokia 4G/LTE radios deployed to more than 350 customers to be migrated to 5G.

Nokia also plans to accelerate its activities to achieve prominence in Open RAN. The company claims it is “the only global supplier fully committed to O-RAN with commercial 5G Cloud-RAN networks. We also announced an expansion of our IP routing business into the data centre market and highlighted that Apple was deploying our technology at its data centres.”

Pekka Lundmark will become CEO on 1 August.

The complete financial report for Q2 and half year 2020 with tables is available at www.nokia.com/financials.