Helsinki: Finland-based network equipment manufacturer Nokia said on Friday it had improved its profitability in April-June 2020, though there was a drop in its second quarter (Q2) net sales.
According to the report published by Nokia on Friday, its net sales in Q2 2020 amounted to 5.1 billion euros (6.04 billion US dollars), down by 11 per cent year on year, while its operating profit in Q2 was 423 million euros, compared to 451 million euros of Q2 2019.
However, Nokia Networks sector has made an excellent performance in Q2 2020. Although net sales of Networks declined by 10 per cent year-on-year to 3.96 billion euros, its operating profit up by 109 per cent to 249 million euros.
Rajeev Suri, President and CEO of Nokia, said in the report that profitability gains in the quarter were supported by a 4.5 percentage point year-on-year improvement in Networks gross margin, building on a 3.5 percentage point gain in the first quarter, and driving Nokia non-IFRS gross margin to 39.6 per cent.
"Nokia Enterprise also grew year-on-year constant currency sales by 18 per cent compared to one year ago and expanded margins," he added.
Nokia delivered a strong improvement in Q2, with better-than-expected profitability, significant improvement in cash generation, clear indications of a return to strength in mobile radio, and a year-on-year increase in earnings-per-share, despite the challenges of COVID-19, noted Suri.
"These results show that our execution has improved as planned and that we are well-positioned to end the year with a significantly stronger financial position," he said.
Suri said the Nokia-level decline in the revenue was mainly driven by COVID-19 pandemic, adding that "we expect that the majority of sales missed in the quarter due to COVID-19 will shift to future periods."
Suri said Nokia now has 83 deals for 5G. He noted that shipments of Nokia's 5G powered by ReefShark had continued to increase.
Analyst Mikael Rautanen on Friday told Finnish business daily Kauppalehti that the positive cash flow vistas of Nokia are promising, but underlined that the increased profitability at Nokia has been attained through savings. Nokia has taken steps to reduce the volume of low margin services worldwide.
Rautanen also noted that Nokia is losing market shares. "Increased profitability has been attained at the expense of market shares," he was quoted by Kauppalehti as saying.
Nokia also improved its estimate of profitability, saying that the non-IFRS operating margin could stand at 9.5 per cent for the full year of 2020, adjusted from 9.0 per cent of earlier estimate.
Commentators in Finland noted the change is minute, but indicates that challenges have diminished.
Nokia stock started rising quickly in the Helsinki stock exchange. As of midday, it had added 13.8 per cent and marked the largest single-day increase in Nokia since 2013, Kauppalehti reported.
This was the last quarter report under Rajeev Suri's tenure. Pekka Lundmark will take over as the company's president and CEO on Saturday.