NOK Nokia Corp

By Parmy Olson 

Nokia Corp. reported a rise in fourth-quarter profit but warned of flat demand for telecom equipment and rising competition for 5G deals in the year ahead.

The world's second-largest telecom-gear maker is battling China's Huawei Technologies Co. and Sweden's Ericsson AB for control of the burgeoning market for ultrafast 5G technology, but so far the rollout has been fitful.

On Thursday, Finland-based Nokia said that outside of China, its markets would be flat this year compared with 2019.

The company pointed to uncertainty in North America related to the much-delayed merger of T-Mobile US Inc. and Sprint Corp. It also flagged challenges in India, where it said demand from mobile-network operators could weaken after a court ruled they must pay retroactive license and spectrum fees.

During the past quarter, Nokia said demand grew for 5G network equipment but shrank for earlier technologies. It said growth in South Korea and Japan was offset by declines in China -- where sales dropped 25% -- and North America.

"They are increasing their momentum in 5G customer wins, which is a good sign," said Tim Hatt, head of research at GSMA Intelligence. "5G is still broadly positive for telecom gear makers but still competitive."

5G, which promises to supercharge cellphones and ultimately enable driverless cars and internet-controlled factories, has had a bumpy rollout in part because of security concerns about the use of Huawei's equipment.

U.S. officials have pushed governments to ban Huawei's gear from their networks, saying the Chinese company could be legally obliged to allow Beijing to use its staff and equipment to spy on foreign networks. Huawei has denied that it would ever do this.

Ericsson Chief Executive Börje Ekholm recently said 5G demand was "actually slowing down, in many countries" because of geopolitical concerns around the use of Huawei equipment. "That has created more uncertainty for our customers," he told The Wall Street Journal in an interview last month. "I think this whole notion that this was a win for Ericsson and Nokia so far has not materialized."

Ericsson last month warned of a slowdown in North America and rising costs associated with the rollout of 5G networks.

Nokia said Thursday it expects competition to remain tough in the coming year as other telecom-gear makers look to take market share in the early rollouts of 5G.

Over the past year, Ericsson has undercut Nokia on price for some of its equipment. Fierce competition was partly behind Nokia's decision last October to cut profit guidance for 2019 and scrap its dividend.

For the fourth quarter, Nokia reported an 11% rise in net profit to EUR821 million ($903.1 million) on flat sales of EUR6.9 billion.

Nokia hopes to improve its business performance with new technology that could help it drive down prices for its own products. For instance, it plans to begin shipping a new system-on-a-chip, a technology system embedded in the company's baseband structures, which could make those structures cheaper.

While Nokia didn't quantify the potential impact of the coronavirus outbreak on sales, its supply chain in China has been affected.

The company has thousands of research-and-development employees in China, while most of its manufacturing in the country is outsourced to third-party electronics makers. The company has restricted nonessential travel to China and required its staff there to work from home this week.

Write to Parmy Olson at parmy.olson@wsj.com

(END) Dow Jones Newswires

February 06, 2020 08:45 ET (13:45 GMT)

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