Nokia improves in Q2, sees results from 5G demand

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Nokia started recognizing 5G revenue in Q2, including in North America, which is expected to continue to grow in the second half of the year. (Getty Images)

Nokia reported second quarter revenue gains and improved profit losses, driven by 5G demand that is expected to ramp up later this year.

The Finnish telecom equipment vendor now has 45 commercial 5G contracts, including operation in nine live networks. Rival Ericsson, which recently reported its own 5G-related Q2 boost, has publicly announced 23 5G contracts, with 15 live networks.

Following a weak first quarter attributed to 5G, Nokia started recognizing 5G revenue in Q2, including in North America. That is expected to continue to grow in the second half of the year, Nokia president and CEO Rajeev Suri said on the company’s Thursday earnings call with investors.

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Nokia’s net sales for the quarter were up 5% year over year to EUR 5.7 billion ($6.3 billion). Its net loss of EUR 191 million ($213 million) improved from the EUR 271 million ($302 million) deficit a year ago.

Nokia’s Networks division generated EUR 4.39 billion ($4.9 billion) in the second quarter, up 8% year over year.

Suri said about half of the company’s 5G radio contracts also include sales of other products.

“Our end-to-end R&D capacity is larger than our European competitor, giving us the resources to catch up where we’re behind and further distance ourselves where we’re already ahead,” Suri said, noting that 4G field performance is one where Nokia leads.

5G Non standalone (NSA), the mode that’s being deployed by operators today, is anchored in 4G and Suri said Nokia’s leadership in 4G is helping the company secure 5G deals.

To date, all of Nokia’s current 4G LTE customers that have decided on a 5G NR deployment have decided to stick with the vendor, according to Suri. While operators in places like the United States and Korea are moving fast on 5G, Suri noted broad 5G deployments will take longer – which he called a good thing so that vendors can be ready on a large scale.

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In the U.S., major carriers other than Sprint have initially launched 5G using millimeter wave spectrum. With Sprint and T-Mobile's merger reportedly all but approved, T-Mobile stands to add 2.5 GHz spectrum to its 5G spectrum portfolio. AT&T has promised to launch nationwide 5G by mid-2020 using sub-6 GHz spectrum.

Suri acknowledged large amounts of mid-band spectrum have not been made available yet in the U.S., though was confident that will happen in the next couple of years. Nokia expects mid-band builds to be a third wave of 5G following the country’s high- and low-band 5G rollouts.

Net sales in North America during the second quarter climbed 13% year over year to EUR 1.75 billion ($1.95 billion), while net sales in Europe generated EUR 1.6 billion ($1.7 billion), up 4% from the year ago period. 

With the staggered nature of 5G deployments in leading regions, Nokia expects to see a particularly strong fourth quarter following an expected “soft” third quarter.

While Suri said he was pleased with Nokia’s performance in the second quarter, he noted risks remain for the rest of the year. That includes delivering on demand in the second half, with particular intensity in the fourth quarter; trade-related uncertainty and challenges in China that include a clear preference for local vendors and pressure on profitability in the region that could cause Nokia to limit its participation in that market; and an overall increase in competitive pressure.