Nokia anticipates that the challenging network industry environment will continue into the first half of 2024. While operator spending remains subdued, the situation is expected to improve later in the year, according to the Finnish telecommunications company.
“Green Shoots on the Horizon” for Nokia
Nokia recently stated that it is beginning to witness some “green shoots on the horizon.” Notably, there has been an improvement in order intake within its network infrastructure business.
Impact of Last Year’s Conditions
The previous year was marred by the adverse effects of high inflation and rising interest rates. These factors led to a decline in demand for Nokia’s network infrastructure and mobile networks businesses. Additionally, operators worked through stockpiles of inventory, further exacerbating the challenging conditions.
Signs of Recovery
Despite persisting conditions throughout the final quarter of last year, there was a rise in customer spending. As a result, network infrastructure orders experienced an uptick compared to the third quarter. Nokia also achieved cost savings, which supported margins during this period.
Ericsson’s Similar Outlook
Nokia’s remarks align with those made by its Swedish rival, Ericsson. Earlier this week, Ericsson stated its expectations for ongoing challenges in the mobile-network industry throughout this year. Both Nordic telecom gear giants faced difficulties last year due to a shift in business mix. The transition from higher-margin 5G work in early-mover markets, like North America, to lower-margin developing markets such as India impacted sales but weighed on margins.
Market Update
While the pace of 5G rollouts in India is starting to stabilize after a period of intense deployment, the demand from North America continues to be hindered as customers gradually work through their inventories and prioritize cash flow.
Nokia Experiences Decline in Sales, but Expects Improvement in Network Infrastructure
Nokia, a leading telecommunications company, has reported a drop in sales in its mobile networks business and network infrastructure. The decline in sales is partly attributed to the loss of work from AT&T, who recently awarded a lucrative deal to Ericsson, replacing Nokia equipment.
In the past year, sales at Nokia’s key mobile networks business have fallen by 17%, while network infrastructure sales have declined by 26%. However, the company remains optimistic about the future, expecting a strong improvement in network infrastructure sales growth in the second half of 2024. This anticipated growth will drive overall success for the full year. Despite this positive outlook, Nokia recognizes that challenges will persist in its mobile networks division due to normalized investments in India and the decision made by AT&T.
Nokia’s Chief Executive, Pekka Lundmark, expressed confidence in the company’s ability to overcome these challenges. He stated, “We do expect further improvement in gross margin, and then in the second half, we will start to see more benefits from our cost-savings program.”
Looking ahead to 2024, Nokia aims to deliver a comparable operating profit ranging from 2.3 billion to 2.9 billion euros ($2.5 billion-$3.16 billion), compared with 2.38 billion euros in 2023.
Despite the decline in sales, Nokia remains committed to its shareholders and plans to propose a higher dividend for the full year. The proposed dividend is set at 0.13 euros per share, up from 0.12 euros in 2022. Additionally, Nokia has initiated a two-year share buyback program worth 600 million euros.
In the fourth quarter of 2023, Nokia witnessed a significant decrease in comparable net profit, which fell by 40% to 558 million euros. Sales also dropped by 23% to 5.71 billion euros. Analysts had predicted a higher comparable net profit of 672 million euros on sales of 6.28 billion euros, according to FactSet.
Nokia is determined to navigate these challenges and regain momentum in its sales and profitability. With a focus on network infrastructure growth and cost-saving initiatives, the company aims to solidify its position in the competitive telecommunications industry.