Finnish telecoms equipment and 5G player Nokia announced on Thursday a fall in net income for 2020 despite a strong fourth quarter, and warned of “meaningful headwinds” this year.
“We saw healthy gross margin and operating margin performance for both (the fourth quarter) and full year 2020,” thanks to a renewed focus on North America and ongoing research and development (R&D) efforts, chief executive Pekka Lundmark said in a statement.
Full-year operating income rose by 5.5 per cent to €2.1 billion, and Nokia’s gross margin increased by 2.5 percentage points to 39 per cent as the firm fought for its share of the tough 5G market.
Shorthand for fifth-generation mobile technology, 5G is expected to pave the way for rapid-fire video downloads and innovations such as fast-thinking self-driving cars.
But despite fourth-quarter growth of 11 per cent in North America, Lundmark said that predicted market share loss there in 5G and 4G, along with price erosion meant the firm’s 2021 outlook remained unchanged, with a seven to 10 per cent operating margin target.
Increased R&D spending will also weigh on the firm’s profitability as Lundmark, who took over in August, reiterated his pledge to “invest whatever it takes to win in 5G”.
“If everything goes well, 2023 could be the year when Nokia resumes what we call profitable growth,” said Mikael Rautanen, analyst at Inderes. “Like the company has said, it’s a three-year project,” he said.
Nokia said it has signed a total of 145 5G deals and deployed 45 live networks, although sales declined by six per cent for the year “primarily due to network deployment and planning services in Mobile Access”.
Competitor Ericsson posted a total of 127 signed contracts in late January.
But Nokia has struggled in the three-way 5G race against Ericsson and Huawei, losing out on a major Verizon contract in the US last year and failing to make inroads in China. “They have lost a fifth of their business in the transition from 4G to 5G, which is a significant loss of market share,” Rautanen said.
Nokia has struggled in the three-way 5G race against Ericsson and Huawei, losing out on a major Verizon contract in the US last year and failing to make inroads in China
Despite finishing the year with net cash reserves of €2.5 billion, the board again decided not to pay dividends for 2020, after they were put on hold in October 2019.