By Supantha Mukherjee
STOCKHOLM (Reuters) -Telecom equipment maker Nokia reported stronger-than-expected quarterly results on Thursday, helped by demand for 5G gear despite supply chain constraints and higher prices of components.
The Finnish company has been gaining ground against rivals such as Sweden’s Ericsson and China’s Huawei after it made its products more competitive by investing heavily in research and found ways to cut costs from other areas.
But a global chip shortage and new COVID-19 lockdowns in China have also put more pressure on Nokia’s supply chains. The shortage has also pushed up prices for parts used in Nokia’s products.
“It’s very clear that prices are going up,” Chief Executive Officer Pekka Lundmark told Reuters. “There is inflation in parts, there is inflation in semiconductors, there is inflation pretty much in everything.”
“We are engaging with our customers now with the goal to see how much of this can be passed on to customer prices,” he said.
Companies usually go in for long-term contracts to lock-in prices but during contract renewals a company would need to account for the current prices.
“A typical contract could be for three years, which would mean that like in Mobile Networks (unit), one-thirds of our contracts will be renewed every year,” Lundmark said.
Since taking over the top job in 2020, Lundmark has been focusing on reducing costs and made changes to recover from product missteps under previous management that hit the company’s 5G ambitions.
While Nokia is seeing higher demand in the Americas, Europe and parts of Asia, countries such as India — expected to be a big driver to 5G demand – have not yet started a full-scale deployment.
The company’s first-quarter comparable operating profit rose to 583 million euros ($613 million) from 551 million euros last year, beating the 513 million euros mean forecast of 11 analysts polled by Refinitiv.
Network infrastructure grew 9% in constant currency in the quarter, driven by strong demand in both fixed and submarine networks.
Net sales grew 5% to 5.35 billion euros, beating estimates of 5.26 billion.
The company also affirmed its full-year net sales outlook of between 22.9 billion euros and 24.1 billion euros on constant currency basis.
Earlier in the month, Nokia announced a pullout from Russia that would lead to a provision of 100 million euros, but retained its full-year outlook.
($1 = 0.9509 euros)
(Reporting by Supantha Mukherjee in Stockholm; Editing by Niklas Pollard, Sherry Jacob-Phillips and Kim Coghill)