Shares of Nokia (NOK), a Finnish telecoms giant, slumped early on Thursday after the group said that margin pressure and the need to make additional 5G investments forced it to cancel dividend distribution for two quarters in 2018 as well as slash the earnings outlook for this year and next.
Net sales rose to 5.69 billion euros ($6.33 billion) during the three months that ended September 30 from 5.46 billion euros a year ago, exceeding the 5.59 billion-euro average analyst forecast compiled by Capital IQ.
Despite higher third-quarter sales, adjusted earnings fell to 0.05 euros per share from 0.06 euros per share a year earlier but still managed to remain in line with the market consensus expecting a lower income in the quarter.
Shares of Nokia slumped more than 18% in early trade on Thursday as the firm surprised the market with a cut in its earnings forecasts for both this year and next primarily due to margin pressure as well as additional 5G and digitalization investments in the business.
Nokia now expects adjusted earnings per share of 0.21 euros plus or minus 3 cents in the full-year 2019, below prior estimates of 0.25 euro to 0.29 euro. In 2020, it anticipates earnings per share of 0.25 euros plus or minus 5 cents, also lower than earlier forecasts of 0.37 euro to 0.42 euro. Additionally, the operating margin for each of the two years has also been reduced.
Chief Executive Officer Rajeev Suri said in an earnings statement that the group has lowered its outlook because it needs to “progressively mitigate” issues such as product mix undermining gross margin in the third quarter, a high-cost level associated with the first-generation 5G products, and profitability challenges in China.
Furthermore, Suri said the company also faced pricing pressure in early 5G deals as well as uncertainty related to the operator merger in North America.
In line with the subdued outlook and challenges facing the firm, Nokia’s board has decided to not distribute third and fourth quarterly installments of its 2018 dividend. It said such a move would guarantee Nokia’s ability to increase 5G investments, continue investing in growth in strategic focus areas of enterprise and software, and strengthen Nokia’s cash position.
This post was originally published on Health Opinion