Nokia shares were down 19% at one point today after the equipment vendor reported a 9% year-on-year net sales decrease in the third quarter, and conditions will continue to be difficult into 2018.
President and CEO Rajeev Suri blamed challenges related to market conditions—like the transition from 4G to 5G—and certain projects particularly in North America and greater China.
“Despite the progress we made in the quarter, we experienced some challenges in our Mobile Networks business and see a continued decline in our primary addressable market in 2018,” he said in a statement. “That decline, which we estimate to be in the range of 2% to 5%, is the result of the multiple technology transitions underway; robust competition in China; and near-term headwinds from potential operator consolidation in a handful of countries.”
Nokia is expanding into cable, but it will take time to offset the declines in its traditional business with communication service providers, he said. Nokia won its first cable customer in WideOpenWest in the United States for products related to its acquisition of Gainspeed, and it’s in trials with almost a dozen customers, including some of the industry's largest players.
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He said there are three main drivers of the challenges Nokia is facing. The sector is in the midst of several technology transitions like 4G to 5G but also physical to virtual and that leads to slower spending and increased uncertainty related to timing. In mobile, while some investments are being made, it will only become significant when 5G truly accelerates, and he reiterated that Nokia believes 5G will come faster than expected starting in 2019.
He also noted that 5G solutions require much more than radio; 5G also means transport of many kinds, software defined networking and orchestration and more, and he said Nokia is one of the few companies that can meet all those needs.
As for China, the early positioning for 5G is well underway and Nokia is trying to ensure the right long-term footprint but not at any cost. In addition, M&A activity, particularly in North America, also is causing some customer spending to slow.
Nokia said that while some additional investment will be required in mobile networks to maintain product leadership, it is committed to its EUR 1.2 billion cost savings plan in full-year 2018.
Nokia isn't the only equipment vendor feeling the pain. Last week, rival Ericsson reported sales decreased by 6% year over year, and networks sales declined by 4%.