Nokia’s shares plunged at the market open in Helsinki as the Finnish networking equipment maker navigates a challenging period.
The stock fell about 24 percent on opening, marking the steepest single-day decline for the company since 1991.
Investors reacted strongly after Nokia revised down its outlook and said it would increase spending to remain competitive in the emerging 5G market.
In a company statement, CEO Rajeev Suri acknowledged the difficulties:
“Some of the risks that we flagged previously related to the initial phase of 5G are now materialising.
We expect that we will be able to progressively mitigate these issues over the course of next year.”
To prioritize investment in 5G, Nokia has suspended dividend payments for the third and fourth quarters while it focuses on product development and cost reduction in its equipment lines.
“We do have an issue relating to higher product cost, which is not particularly surprising at this early stage in a new 5G radio cycle,” Suri said on a conference call with reporters.
“Those costs typically go down significantly as scale increases and cost optimisation work proceeds.”
Nokia still expects substantial long-term revenue and earnings from 5G networks, but the company now anticipates that profitability will be delayed. Management projects a recovery in earnings by 2021 as cost efficiencies and scale take hold.
Competition from Ericsson and Huawei remains intense. Huawei in particular is widely regarded for offering powerful and cost-efficient 5G equipment, which makes it an attractive option for operators in markets where it is permitted to compete.
Geopolitical tensions and security concerns in several countries have led to debate over banning Huawei’s 5G gear, creating opportunities for rivals such as Ericsson and Nokia to secure contracts with operators seeking alternatives.
“While I’m not completely satisfied with our current performance, I am confident that our strategy remains the right one,” Suri added.
Nokia says it will restore dividend payments once its net cash position is rebuilt to roughly €2 billion, reflecting a more conservative approach to capital allocation while supporting the investment cycle for 5G.
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