Nokia Expects Demand in Mobile Networks to Pick Up — 2nd Update

By Dominic Chopping

Nokia said the first quarter marked the low point in mobile networks demand, with activity expected to progressively pick up through the remainder of 2024.

The Finnish telecommunications company's first-quarter earnings beat expectations, with lower sales of its gear offset by a one-off bump from catch-up payments related to delayed licensing deals with cell phone manufacturers.

High inflation and rising interest rates led network operators to spend cautiously, particularly weighing on its mobile networks business, but network-infrastructure orders have slowly ticked higher over the last couple of quarters, it said.

Speaking on a media call after the earnings were released, Chief Executive Pekka Lundmark said the fixed network unit of its network-infrastructure business has been particularly promising. This is notable because the fixed network business has preceded general market recoveries in previous cycles, he said.

Nokia's comments come after Swedish rival Ericsson earlier this week said it expects sales to stabilize during the second half of the year despite the mobile-network market continuing to fall.

The two Nordic telecom-gear giants have seen 5G work dry up in North America while frantic rollouts in India are moderating, prompting them to rightsize their organizations and find cost savings to cushion margins. Both companies are cutting thousands of jobs globally.

Overall, sales at Nokia's key mobile networks business fell 39% on year, and while network infrastructure sales declined 26% on the year, Nokia said improving order intake momentum seen in the fourth quarter of 2023 continued in the first quarter.

"This gives continued confidence that...the business will see much stronger trends into the second half of 2024, supporting the assumption that network infrastructure will return to growth on a constant currency basis in full year 2024," Lundmark said in the earnings release.

Nevertheless, the environment is still challenging and it will still be a weak year for the overall radio access network market, he added.

The company reported an operating margin of minus 2.7% in its mobile networks unit and 4.9% in network infrastructure but still expects margins to reach between 1% and 4% and between 11.5% and 14.5%, respectively, in 2024.

The company posted a 50% fall in its first-quarter comparable net profit to 497 million euros ($530.5 million), beating estimates with analysts polled by FactSet of EUR347 million. However, sales fell 20% to EUR4.67 billion, missing consensus at EUR4.97 billion.

The earnings beat was mainly thanks to a strong start to the year in its technologies business that holds the company's patent portfolio. After signing a number of outstanding licensing deals in the quarter the company booked EUR400 million of catch-up payments.

Technologies currently generates around EUR1.3 billion in sales on an annualized basis and Nokia will now seek to expand beyond the traditional businesses of handset and personal electronic devices into new growth areas such as the auto sector to increase annual licensing sales to between EUR1.4 billion and EUR1.5 billion.

With cost savings feeding through and as sales growth improves in the second half of the year, the company said it still expects to deliver comparable operating profit of between EUR2.3 billion and EUR2.9 billion in 2024 compared with EUR2.38 billion in 2023.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

April 18, 2024 03:16 ET (07:16 GMT)

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