Nokia’s shares rose 16% in premarket trading after the telecom group’s earnings surprised to the upside, driven by 5G growth. The Finnish company unveiled a new strategy to merge into four business groups in October, and new CEO Pekka Lundmark promised to do “whatever it takes” to lead the 5G space, having lagged behind in recent years. Its first-quarter earnings showed signs that it could be starting to work.
Net sales increased 3% year-over-year to € 5.08 billion ($ 6.2 billion), beating the FactSet consensus for sales of € 4.75 billion. The pace of sales was driven by growth in Nokia’s mobile networks unit, due to strong sales of 5G equipment, and its network infrastructure segment. Nokia’s NOK, -0.47% NOKIA, + 13.74% comparable gross margin increased to 38.2% from 36.4% in the prior year period, which the company again said was down to growth in 5G, while its operating margin was 10.9%. Comparable net profit of € 373 million crushed expectations of € 90 million. It maintained the full-year guidance for sales of € 20.6 billion to € 21.8 billion and an operating margin of 7% to 10%. However, Lundmark cautioned that Nokia’s typical quarterly seasonality would be less pronounced in 2021 as it continued to monitor market developments, in particular semiconductor shortages. The Finnish-listed telecoms equipment maker’s shares rose 14% in early trading as investors welcomed upbeat first-quarter earnings. Read: Nokia is cutting up to 10,000 jobs to boost 5G investment The stock, a favorite among individual investors and Reddit users in recent months, has had a volatile year so far. The shares rose 55% in the space of three days at the end of January, prompting the company to release a statement saying it could not explain the rally. The stock has since pulled out, but Thursday’s early rise now sees Finnish stocks rise 28% so far this year. Nokia and its Nordic rival Ericsson ERIC, -0.71% have benefited from Western countries banning China’s Huawei from 5G networks on national security grounds. But Nokia said its conversion rate from its 4G footprint to 5G in 2020 was hit by deficits in China and North America; in particular, it lost to Samsung in a $ 6.6 billion deal with Verizon VZ, + 0.20%. The company’s 5G conversion at the end of the first quarter was 90% excluding China, dropping to 80% including the country. It said it was on track to hit a market share target of 25-27% in 4G and 5G, excluding China in 2021. Plus: Apple‘s earnings were impressive. It boosted buybacks and also increased its dividend. “It is somewhat difficult to measure how much of this is cyclical versus structural, but the company is a clear beneficiary of Huawei’s sanctions and spending on 5G infrastructure outside of China will accelerate,” said Dan Ridsdale, global director of technology, media and Telecommunications of Grupo Edison. Citi analysts expected “very strong” revenue and operating profit to drive significant improvements to the consensus forecasts for 2021. They noted that while the guidance remains unchanged, management said the first quarter provides a solid foundation for reaching the upper end of its 7% to 10% operating margin range. They maintained a neutral rating on the stock with a price target of € 3.55.