Nokia yesterday published their Q2 2019 financial report that showed the company increasing revenue and reducing operating loss above market expectations, which triggered Nokia stocks to soar on the New York Stock Exchange by 10%, while the stock price in Helsinki Stock Exchange soared by still impressive 7%.
Nokia maintained its guidance for the full year, expecting a soft third quarter and a strong fourth quarter. The risks mentioned in the report state increasing short-term demand that requires short term investment, as well as US-China trade war.
Nokia’s Chief Financial Officer Kristian Pullola mentioned to LightReading.com that as Nokia goes through the transition from 4G to 5G in China, it noticed more support for local vendors in China. ” (…) that is something we need to recognize and take into account when we make assessments and look at where to invest and when to back away from some of the competitive situations that hinder us to deliver profitable and longer-term growth,” said Mr. Pullola
China’s vendors like Huawei and ZTE, especially after the recent Western pressure, do find their home market as a safe haven. If the support for local vendors continues to pressure Nokia’s business in China, the company will have to re-evaluate if it is better to further invest or pull back.
China accounted for 9% or €515 million of Nokia’s net sales in Q2 2019 and losing that would be a significant hit. On the other hand, if Nokia starts operating in China at a loss that has small potential to turn into a profit in the future, pulling back looks reasonable.