According to Nokia President and CEO, Rajeev Suri, Nokia’s “solid first quarter interim results showed broad year-on-year profitability improvements as our transformation and product cost reduction efforts started to take hold”.
“On a year-on-year basis, group-level non-IFRS operating margin was up by 3.6% points, networks gross margin increased by 3.5% points, Nokia Software had an excellent quarter with sharp margin improvements and strong momentum with customers in North America, and Nokia Enterprise delivered double-digit sales growth.
“As I noted last quarter, we continue to have a sharp focus on Mobile Access and cash generation and saw good progress in both areas in the first quarter. ‘5G powered by ReefShark’ shipments continue to increase and product cost reductions are proceeding well.
“We also announced some leading new solutions in the quarter, including a unique approach to dynamic spectrum sharing that is in test mode with select major customers today, and is expected to be available in volume over the summer, in line with the availability of DSS-capable mobile devices.
“On the services side, ongoing execution improvements drove improved year-on-year profitability. We also enhanced our total cash position to €6.3 billion, while net cash showed an expected seasonal decline to €1.3 billion.”
Nokia’s Q1 report shows that:
- Non-IFRS (International Financial Reporting Standards) net sales in Q1 2020 were EUR 4.9bn, compared to EUR 5.1bn in Q1 2019.
- Reported net sales in Q1 2020 were EUR 4.9bn, compared to EUR 5.0bn in Q1 2019.
- On a constant currency basis, non-IFRS net sales decreased 4% and reported net sales decreased 3%.
- Excluding one-time licensing net sales in Q1 2020 and Q1 2019, net sales decreased 2% on both a non-IFRS and reported basis.
As well as the continuing momentum of 5G, Nokia reported for Q1 improved margins “as transformation and product cost reduction efforts take hold”, including:
- Confidence in resilient customer base and strong liquidity position
- Strong growth in Nokia Software and Nokia Enterprise
- Within previously provided Outlook ranges for full year 2020, adjusted the non-IFRS mid-points for EPS to EUR 0.23 and operating margin to 9.0%
- Majority of COVID-19 impact expected in Q2; continue to expect a seasonally strong second half
Rajeev Suri said the improvements are coming at a time of “unprecedented change, given the impact of COVID-19”, adding that the company’s top focus areas are “protecting our employees, maintaining critical network infrastructure for customers, and ensuring we have a strong cash position”.
“In Q1, we saw a top line impact from COVID-19 issues of approximately €200 million, largely the result of supply issues associated with disruptions in China,” he said.
“We are adjusting the mid-points within our previously disclosed Outlook ranges for full-year 2020 to reflect the increased risks and uncertainty presented by the ongoing COVID-19 situation. We expect the majority of this COVID-19 impact to be in Q2 and believe that our industry is fairly resilient to the crisis, although not immune.
“We did not see a decline in demand in the first quarter. As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans.
“Pleasingly, despite the majority of our R&D employees working from home, we have not seen any impact on our roadmaps, and, in fact, some key software releases are proceeding ahead of schedule. Additionally, we saw a massive increase in network capacity demands.”
According to Nokia, the COVID-19 crisis has made “vividly clear the critical importance of connectivity to keep society functioning”.
“We feel a sense of duty to our customers and the communities they serve to keep vital communication networks running and accommodate expanded needs as usage reaches unprecedented levels.
“We are continuing to advance our 5G roadmap and product evolution, as planned, and our COVID-19 mitigation actions in R&D have been very successful. We believe we remain on track with our plans to drive progressive improvement over the course of 2020.”