Nokia Oyj forecast a stagnant market for phone equipment this year, sending shares down the most in six months as investors looking for signs it could benefit from a crackdown on Chinese rival Huawei Technologies Co. were disappointed.
Nokia also projected weaker-than-expected 2019 earnings as carriers delay buying the 5G systems that are key to its growth, including in the US.
Nokia and its Swedish peer Ericsson AB are poised to benefit from bans on Huawei gear in the US and Australia and possible restrictions across Europe. While Nokia says it’s set to win market share, it appears to be falling behind its Swedish competitor on the flexibility of its radio technology, according to Liberum analyst Janardan Menon.
“The market was expecting better guidance for this year,” Inderes analyst Mikael Rautanen said in comments. “The prize remains there, and Nokia is heading toward it, but the journey is foggier and bumpier than expected.”
CEO Rajeev Suri spent much of 2018 promising that the final months of the year would show a sharp increase in spending by US operators, who are starting 5G services. Although the final quarter of 2018 delivered, lifting the full-year operating margin at the company’s key networks business to 6 percent, Nokia now expects the first six months of 2019 to be “soft” followed by a much more robust second half.
The prediction for a stagnant market for telecommunications gear this year —before growth in 2020 —contrasts with Ericsson’s guidance of 2 percent growth for radio-access network equipment. The Finnish company predicts a “staggered” rollout in important places like the US, Japan, Korea and China, Suri said.
on a call with reporters.
Executives from Nokia and Ericsson have been careful not to be seen to benefit from Huawei’s pain. Both companies manufacture in China and do business with carriers in the country. Suri said Nokia is closely monitoring developments around Huawei.
“The situation is still very much in flux, and the outcome is for governments to decide, not Nokia,” Suri said on the call with reporters.
The U.S., which has long restricted the use of gear from the world’s top telecom equipment maker, has led a global campaign to have Shenzhen-based Huawei cut out of deals to build new network infrastructure that promises to facilitate a range of services from ultra-fast movie downloads on mobile devices to self-driving cars.
Governments considering restrictions on Huawei’s gear are concerned that the Chinese government could use its equipment to spy on it and its allies. Huawei contests those claims.
Nokia’s forecast for full-year earnings per share of 0.25 euros to 0.29 euros lagged the average estimate of 0.32 euros, according to data compiled by Bloomberg.
Ericsson shares were little changed in Stockholm. The Swedish company has invested in research and development to get out of a rout that had seen almost half of its value erased in the year preceding Borje Ekholm’s appointment as CEO in October 2016.