Nokia cuts sales forecast as mobile sales drop 25%
Yesterday, Nokia cut its full-year sales forecast as the telecom market remains uncertain with network operators continuing to cut spending (CAPEX) in new network equipment, especially for the disappointing 5G (which is actually 4G with a 5GNR for 5G NSA which are by far the majority of 5G network deployments).
Nokia, like its Swedish rival Ericsson, has struggled to replace the strong revenue, high-margin contracts they enjoyed in North America early in the 5G cycle. When work in the region dried up, India became the main revenue generator, but work there attracted much lower margins and sales have now also slowed sharply.
Overall, sales at Nokia’s key mobile networks business fell 25% on year, mainly due to the sharp drop in India, but the company got a EUR150 million boost from a contract resolution with AT&T. 2Q-2024 net sales declined 18% y-o-y in constant currency (-18% reported) primarily due to strong year-ago quarter in India.
Nokia doesn’t provide specific group sales guidance but instead offers sales growth assumptions across its business units, which are all now seen at a weaker level than earlier as the expected net sales recovery is happening later than previously hoped.
The company said Thursday that comparable operating profit guidance of 2.3 billion euros to 2.9 billion euros ($2.52 billion-$3.17 billion) this year remains intact, tracking toward the mid-point or slightly below the mid-point.
“We believe the industry is stabilizing and given the order intake seen in recent quarters we expect a significant acceleration in net sales growth in the second half,” said Chief Executive Pekka Lundmark.
High inflation and rising interest rates have seen network operators spend cautiously over the last couple of years, but orders have slowly ticked higher over the last couple of quarters and the trend is continuing, particularly in network infrastructure, he said.
Late last year the U.S. operator awarded a major network contract to Ericsson for OpenRAN, replacing Nokia equipment. Nokia had contracts with AT&T and the Finnish company said it will still receive the value of those contracts while remaining a significant customer through other deals.
Network infrastructure sales declined 11% on the year, but Nokia said the unit has returned to growth in North America, which is important as it was one of the first markets to experience the 2023 market slowdown.
Nokia is desperately trying to reduce annual costs. Lundmark’s goal is to make cuts of between €800 million ($875 million) and €1.2 billion ($1.3 billion) by 2026, reducing the size of the workforce from about 86,000 employees when the program was first announced to between 72,000 and 77,000. Expect at least 14,000 Nokia employees to be axed in the next 18 months
To date, Nokia has been able to achieve “run-rate” savings of about €400 million ($437 million), it revealed in its earnings report.
“With the challenges of 2023 behind us, and more normalized customer inventory levels, we believe we can now look forward to a stronger second half and a return to growth [in network infrastructure], which we expect to continue into 2025,” Lundmark said.
The company reported an operating margin of 8.7% in its mobile networks unit and it now expects to report a margin of between 4% and 7% in 2024, from 1% to 4% previously. It reported a margin of 6.4% in network infrastructure and still expects a margin of between 11.5% and 14.5% this year.
Group comparable net profit fell 21% to EUR325 million in the second quarter, beating a FactSet estimate of EUR280 million. Sales fell 18% to EUR4.47 billion, missing consensus at EUR4.78 billion.
Improving cash generation means Nokia now intends to accelerate its continuing EUR600 million buyback program with the view to completing it by the end of this year, compared to its previous end-of-2025 target, it said.
References:
https://www.lightreading.com/5g/nokia-takes-big-axe-to-mobile-jobs-but-grows-footprint-outside-at-t
Former telecom equipment giant Nokia sees double-digit fall in sales amid challenging 5G environment. Nokia Oyj sales in Q2 declined 18% to €4.47 billion ($4.9 billion) — the lowest of any period since 2015
https://x.com/FortuneMagazine/status/1814317281872109569
Nokia recently agreed to buy Infinera, a big optical equipment maker, for $2.3 billion. But cloud and network services looks smaller than ever. When Nokia reported recent second-quarter results last week, sales were down 17% year-over-year, to €615 million (US$670 million), the lowest quarterly haul for at least two years. An operating loss of €25 million ($27 million) marked Nokia’s worst over the same period. In its update, Nokia blamed the disposal of the device and service management platforms for about three percentage points of the sales decline.
5G SA core network has failed to excite most telcos and stimulate spending so far. Dell’Oro and Omdia, two analyst firms, have cut their outlook. The cloud software and services unit of Ericsson, Nokia’s big Nordic rival, is also unprofitable. When Nokia reported first-quarter results a few months ago, it expected full-year sales to grow 0.5%, at the midpoint of its forecast range. It is now looking at a 2.5% drop, it said last week.
But Nokia continues to believe last year’s divestment of cloud infrastructure assets made good strategic sense. “With the amount of spend that is going into the Red Hats and the hyperscalers and the resources and people and talent, it was very, very clear to us that’s not going to be an area we will be able to compete in,” said Raghav Sahgal, the president of the cloud and network services business group, when he met Light Reading last month, just before second-quarter results were out.
https://www.lightreading.com/cloud/nokia-defends-red-hat-deal-logic-in-dark-days-for-cloud