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Nokia counts cost of competing for 5G market share

(Image credit: Nokia)

Nokia says the high cost of developing 5G technology and intense competition in the sector has resulted in it cutting its financial outlooks and pausing dividends.

The Finnish networking giant met expectations for Q3, with sales increasing by five per cent to €5.7 billion, and now claims to have agreed 48 commercial 5G deals and 15 live networks. However forecasts for 2019 and 2020 has been reduced.

By suspending dividend payments, Nokia hopes to increase investments in 5G and in other areas of the business and strengthen the firm’s cash position.

Nokia 5G

CEO Rajeev Suri told investors he was convinced Nokia’s strategy was the correct one, pointing to its end-to-end technology capabilities and the growth of its software and enterprise businesses.

“Many of our businesses are performing well and we expect Q4 to be strong,” he said.

“At the same time, some of the risks that we flagged previously related to the initial phase of 5G are now materializing. In particular, our Q3 gross margin was impacted by product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty related to the announced operator merger in North America.

“We expect that we will be able to progressively mitigate these issues over the course of next year. To do so, we will increase investment in 5G in order to accelerate product roadmaps and product cost reductions, and in the digitalization of internal processes to improve overall productivity.”

Nokia competes with the likes of Huawei, Ericsson, Cisco and Samsung in the 5G equipment market and believes its end-to-end capabilities are a key differentiator. Nokia says procuring equipment, software and services from a single vendor can reduce total cost of ownership by more than 20 per cent and reduce time to market by at least 30 per cent when compared to a multi-vendor strategy.