Nokia Oyj (NOK) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the Nokia First Quarter 2021 Earnings Teleconference and Video Call. All participants will be in a listen-only mode. Please, note that this event is being recorded. I would now like to turn the conference over to Mr. Matt Shimao, Head of Investor Relations. Sir, you may begin. Matt Shimao : Ladies and gentlemen, welcome to Nokia's First Quarter 2021 Conference Call. I'm Matt Shimao, Head of Nokia Investor Relations; Pekka Lundmark, President and CEO of Nokia; and Marco Wiren, CFO of Nokia, are here with me via teleconference and video today. During this call, we'll be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in more detail in the section titled, operating and financial review and prospects, risk factors of our 2020 annual report on Form 20-F as well as our other filings with the US Securities and Exchange Commission. Pekka Lundmark : Thank you, Matt, and hello, everyone, and thanks for joining the call, and I hope you and your families remain safe and well. Well, we have had a great start to the year. It shows we are on track to deliver on the three-phased plan to return us to sustainable profitable growth. We delivered 9% top line growth in constant currency and a 10.9% comparable operating margin, a clear improvement year-on-year. The standout was our network infrastructure business, which had a fantastic quarter with 28% net sales growth in constant currency and a double-digit comparable operating margin. This business group builds on strong technology leadership, and we see robust demand for its products. Solid progress also in Mobile Networks with increased profitability, growing sales in 5G and good steps taken towards securing full portfolio competitiveness. So today, I want to take you through our performance with an emphasis on how we are attaining technology leadership, adapting to new business models and addressing new and emerging areas of growth. My presentation will begin with the overall picture, looking at our Nokia level sales, margins, cash and guidance. I will then drill down into our four business groups to explain the underlying drivers. And finally, I will talk about how this quarter, this first quarter relates to the 3-phased plan, which we outlined at Capital Markets Day. But let's begin with the Nokia level numbers. And all the net sales and addressable market figures in my speech today will be in constant currency. And for margins, I will focus on those on a comparable basis. First, sales. As you can see from this slide, we made good year-on-year progress in Q1. Net sales increased by 9% to €5.1 billion, driven by strong growth in Network Infrastructure and solid growth in Mobile Networks. In 2021, we expect our total addressable market growth to be 3% year-on-year. This is driven by increasing consumer capacity demand served by 5G rollouts and by the increasing focus on residential broadband. We also see growth opportunities in the market for enterprise and web scale with IoT, Edge and industrial digitalization. These market drivers were reflected in our first quarter results, in particular, in the growth of 5G sales, demand for our Network Infrastructure solutions and 18% net sales growth with enterprise customers, which you can see on this slide. This growth was -- this enterprise growth was driven by securing 63 new customers in Q1, more than double the number we secured in Q1 last year. Approximately half of these customers bought our private wireless solutions, meaning we now have over 290 private wireless customers. Marco Wiren: Thank you, Pekka, and welcome from my side as well. Since Pekka walked through our Q1 performance by business group, I will today start by giving a brief look at our Group Common and Other's results. I will then take you through our Q1 cash performance and liquidity position, then I will cover our addressable market. And before closing, I will say some words about our outlook as well. So with that, on to Group Common. As a reminder, under our new operating model, Group Common now consists of radio frequency systems, RFS, as we call it, Nokia Growth Partners, NGP, and certain corporate level and centrally managed expenses such as Nokia Bell Labs, group staff functions. And net sales here is entirely related to RFS, that increased 9% on a constant currency basis, driven mainly by North America. And Group Common's impact on the comparable operating profit improved over €100 million year-on-year. As in Q4, we benefited from gains in our venture fund investments in Q1. A part of this improvement was related to FX, due to the fact that moves in Euro-US rate, which consequently drove the revaluation of the USD-denominated funds. Moving to our cash flow performance now. I'm pleased with our Q1 results, which now marked the fourth consecutive quarter of positive free cash flow. The clear drivers were our overall strong profits and net working capital development in the quarter. The overall net working capital drove an increase in net cash of €910 million. And within these receivables, were the main component, decreasing nearly €1.1 billion. This has driven a seasonal decrease, which is typical in Q1, followed by a strong Q4 net sales as well as good cash collection in the quarter. Additionally, inventories were flattish in the quarter, primarily due to extended lead times on certain components. These were partially offset by an overall decrease in liabilities. There is one additional note that I would like to make regarding receivables. Our focus is on commercial discipline and terms and conditions. And now we use the sale of receivables to manage the credit risks. And by the end of last year, we significantly reduced the amount of sale of receivables and are now at the level that is normal for Nokia and our industry as well. In Q1, cash flow, strong profits and net working capital were partially offset by CapEx and restructuring cash outflows, and these are relating to our previous cost-saving programs. This led to free cash flow of €1.2 billion in the quarter, which was very strong compared to our typical Q1 performance. And looking forward, keep in mind that Q2 is when we typically pay our annual employee incentives for the prior year, which negatively impacts cash. Then stepping back to Q1 and looking at our overall liquidity position, we ended the quarter with €3.7 billion of net cash and €8.8 billion of total cash. Recurring debt, we paid down €350 million loan in the quarter, and our next maturity comes due in June 2022, and this has already been pre-financed with debt that we secured last year. So, all in all, our liquidity position remains strong, and both our net and total cash positions have pleasingly been steadily increasing since 2019. As we explained at our Capital Markets Day, our main focus is on deploying capital to secure technology leadership. And we feel that our liquidity position enables the consistent long-term R&D investments necessary to attain and expand our technology leadership across the whole portfolio. In addition, the strong cash position provides flexibility to build additional inventory to mitigate the risk given the current tight conditions in the global semiconductor market. And before moving on to our outlook, I wanted to touch upon our other point related to our report that we published today. In addition to our efforts to streamline and simplify the report, you may have noticed that we are now providing some information about the addressable markets development on MI, MN, NI and CNS. First of all, please note that our addressable forecasts are based on EUR/USD rate, 1.23, which was the rate at the end of 2020. Overall, our view of the 2021 total addressable market increased slightly compared to our view that we had at the end of last year. And this was driven by an improvement in the North American CSP market for Mobile Networks. You may be wondering why our market estimates differ from some of the external analysts' views. The difference here is mainly because of the FX. For example, Dell'Oro does forecast only in USD. Based on the recent FX fluctuations, this has huge impact for companies that do not report in USD. If you would adjust for FX, you would find that our growth rate assumptions are broadly consistent with Dell'Oro's view. And in Pekka's remarks today, he provided comments on the constant currency addressable market growth rates we expect in 2021. And the FX impact is clearly material. And then finally, into our outlook. As Pekka said, this is -- at this point, we are maintaining our outlook for the full year, and we want to see how 2021 develops. The solid first quarter provides a good foundation for achieving the higher end of the 7% to 10% range for comparable operating margin. The global semiconductor availability in the second half of the year is the main uncertainty we face and we believe it is wise to be cautious until we have enough visibility to be confident. We continue to be in close dialogue with our suppliers and are giving the situation our full attention. So, in conclusion, we are pleased with our Q1 progress, and we are well-positioned to deliver on our full year commitments, even though we expect less pronounced seasonality this year, given our strong Q1 results. So, with that, I will hand over to Matt for Q&A. Matt Shimao: Thank you, Marco. Cole, please go ahead. Operator: Thank you. And we will now begin the question-and-answer session. Our first question today will come from Alexander Duval with Goldman Sachs. Please go ahead. Alexander Duval: Yes, good afternoon and many thanks for the question. I wondered if you could give us an update on your position on your wireless base station products and your progress revitalizing that business. One of your competitors has announced a lightweight massive MIMO product, so how is your progress in that area? And can you talk a bit about your confidence level on your wireless product more broadly? For example, how would you assess your progress on multi-radio basebands that can do 4G and 5G, and what's the latest update on your timeline for getting to a product portfolio in wireless that you're happy with? Many thanks. Pekka Lundmark: Thank you, Alex. That's a great question to start with and it's, of course, a highly relevant question. You asked about our confidence level. It's pretty high, and we have made great progress recently. I can confirm that we have new radios coming to the market. And we are then talking about both a new massive MIMO radio and also a new baseband. When it comes to massive MIMO radio, the new product will be launched soon. As I said, I can confirm it's coming, and it's coming approximately at the same time when -- as the one with our competitor that you are probably referring to. We will launch the detailed specification of that radio later. But couple of sneak previews, it has higher -- wider bandwidth than the one that the competitor you were referring to will have, and it also for certain high-volume configurations, and I guess 32T/32R would be the best example here. It has -- it will be lighter weight than that of the competition. So, we believe that it will be a highly competitive massive MIMO radio. Then the second part of your question had to do with the baseband platform. And I'm pleased to confirm that our first common baseband for 4G and 5G is now delivering to some pilot customers and feedback is excellent, and the full ramp-up will be done or starting now during the second quarter. So, this product is already delivering. And based on what we are understanding, we will have achieved lower power consumption, better capacity, scalability. And overall, when we look at how future-proof this platform is, we have good reasons to be optimistic. And this whole question of the 5G radio competitiveness will, of course, be absolutely central to the overall competitiveness of our Mobile Networks business and that being half of Nokia, of course, to whole company. Matt Shimao: Thank you, Alex for your question. Thank you. Cole, let's take our next question please. Operator: And our next question will come from Sami Sarkamies with Nordea Markets. Please go ahead. Sami Sarkamies: I would like to move on to network infrastructure, where we saw very high-growth rates at IP networks, fixed networks and submarine networks. How do you see the demand outlook for Q2 and for the remainder of the year? And are you concerned with component shortages in these areas? Pekka Lundmark: Yes. Thank you, Sami. The demand outlook is pretty solid. I mean we had -- in some segments there, we had easy comparisons to last year. But of course, the overall volume and profitability for the business was good. And for example, submarine networks, we have record high order book at the end of the first quarter. And the big trends that I was talking about in terms of demand for fixed broadband. And so and they are not going to go away. And we should not forget that actually 5G will start to drive the demand for fixed connections as well. It is already doing that for base station connections for backhaul connections. We had some of that already in Q1, but then in the little bit longer-term, when we get to the phase where operators will start to build small, high capacity, small cells in millimeter wave frequencies, that will actually increase the demand for fiber when these base stations, these small cells will have to be connected back to the network. So, I would say that the megatrends are on our side here. Now the component situation, we have been able to manage it pretty well. And the guys in this business have done a great job in supply chain management and also getting prepared for the upcoming component shortage. But this is a question that will deserve continuous attention. We are working hard with our suppliers, and as we also said in the release, limited -- I mean, the visibility to the second half and our suppliers' capability to deliver, it is more limited than usual lead times have increased, and the whole world is suffering from component shortage. So that's why -- I mean -- that's why I say that this situation deserves constant attention. But we have done well so far. Matt Shimao: Thank you, Sami for your question. Cole, take our next question please. Operator: Our next question will come from Varun Rajwanshi with JPMorgan. Please go ahead. Varun Rajwanshi: Hi. Thanks for taking my question. Pekka, my question is on the North American market, very strong growth in the first quarter of the year. How do we reconcile this with the share loss that you are seeing at a major North American telecom operator? And how are you looking at the performance in this business going into the second half of this year? Thanks. Pekka Lundmark: Yes. Thank you. First of all, the North American progress was very good in Q1, double-digit growth, primarily driven by Network Infrastructure business. But also mobile networks, I mean, yes, the market share loss with that one particular customer started to be visible already in the second half of last year and now it continued, and it will -- that effect will continue to strengthen towards the end of the year. But the interesting thing is that mobile networks in the first quarter were more or less able to compensate for that effect with the other customers. But this overall kind of, I guess, it is fair to call it a challenging situation with market share and price pressure in the North American market. It will continue. What we have said earlier about the full year will be true, and the impact will be gradually stronger when we get towards the end of the year. And this is one key reason for us saying that the seasonality, our result seasonality that we have typically seen where the first quarter is weak and then improves a great fourth quarter that we expect it to be less pronounced this year. Matt Shimao: Thank you, Varun. Cole, next question please. Operator: And our next question will come from Robert Sanders with Deutsche Bank. Please go ahead. Robert Sanders: Yes. Hi. Good afternoon. I was just going to ask a question about South Korea and Japan. Your Swedish competitor saw a lot of strength in those countries in the quarter, but you saw a decline in your Asia Pac business ex China. Did something happen in those countries, for example, 5G share loss and if that is the case, what are your prospects to recover share here? Thanks. Pekka Lundmark: Thank you. I actually touched a little bit upon that in my opening remarks, where I confirmed that our market share outlook for the Asia Pacific region is stable. And a particular question about the Japanese market and the comments made by our competitor may have to do with the timing question -- timing issues where some of the deployments are first going on in our competitor's region and our regions will follow later. Matt Shimao: Thank you, Rob. Cole, let's take our next question please. Operator: And our next question will come from Simon Leopold with Raymond James. Please go ahead. Simon Leopold: Appreciate that. Thanks for taking the question this morning, I guess, afternoon for you. I want to really see if I could get a little bit better explanation around the operating margin trends here, given that March was really super strong, especially consider seasonality at 11%, yet you're maintaining the full year outlook of 7% to 10%. And I know you've talked about the supply chain risk, but you haven't adjusted your thoughts on the revenue trajectory other than muted seasonality. I feel like there's something I'm missing here, whether it's what you're thinking about operating expense trends or gross margin. If you could unpack this a little bit more, I'd appreciate it? Pekka Lundmark: Okay. Thank you. Let's do so that. I'll mention a couple of things, and then Marco will follow up. Well, first of all, this was a great quarter. We saw really good demand, and 9% comparable currency growth was a great start to the year. So that needs to be taken into account. Then we had really good mix in this quarter product-wise and also regionally. That is one thing. Then the second thing is the supply chain situation that we are monitoring carefully. We want to be a little bit careful with how we look at the second half of the year, despite the fact that so far, we have done extremely well. Then there is a third thing, which is the R&D increase that we have said that, we will do this year. When you look at our R&D expenditure, in Q1 it was flat year-over-year. So that means that the increase will come later this year. So these are at least some of the reasons why we expect less of seasonality this year. And then one I already talked about earlier, it is the profile of North American market, especially Mobile Networks and still pretty good Q1, but then some of the things that I was talking about start taking a bigger effect towards the second half of the year. But Marco, over to you. Marco Wiren: Yes, just building on what Pekka said that the mix will normalize most likely throughout the year. So Q1, we had a very good mix impact both from product and geographical wise. Then in addition to R&D, if you look at our SG&A costs in Q1 as well, so they were quite low-ish. So -- and of course there was several reasons for that. Of course, the year-over-year comparison is one, but we believe that because of the organizational change that we've done in operational model, we will have more SG&A costs that should have come in Q1, perhaps not coming a little bit later. Pekka Lundmark: And then there is venture fund and reversal of bad debt. Marco Wiren: Yes. And then we have bad debt reversal that we have made earlier on the customers that actually paid in the – actually, last days of March. And venture fund is something that we had a good impact in Q1. And that will -- don't think that will continue at the pace as we saw in Q1. Matt Shimao: Great. Thank you, Simon for your question. Cole, take our next question. Operator: Our next question will come from Frank Maaø with DNB. Please go ahead. Frank Maaø: Yes. Hi, everyone. So my question relates really to your relationship with Verizon. And you might have commented on that a bit earlier, I had technical difficulties. But my question relates more to really whether – what the scope could be for a comeback on the radio side, given your new competitive upcoming next-generation radio product and baseband and the fact that you are pretty much ahead of many others with regards to closed RAN and open RAN type of architectures which is probably one of the reasons why they've taken in Samsung according to the press release that they were out with. So one of the points of that is -- of open architecture is to be able to mix and match and to introduce more vendors. So could there be a room for comeback for Nokia there in some of that -- some of that footprint, which the market really has priced in here that you have lost? That's my question. Thank you. Pekka Lundmark: Yes. Thank you. That's an understandable and highly relevant question, and you will also understand that there isn't that much detail, I can comment because there are confidential customer matters here. You may have noticed that Verizon did list us as one of their radio partners at their Capital Markets Day. There's a lot of Nokia Radio in their network. At the same time, it is a fact that we have not announced any large-scale 5G C-band radio deals with them. What I do want to highlight though is that Verizon remains our top 3 customer. We have a really good business with them in other sectors. And we continue to work with them also in radio, in addition to IP Networks, which, for example, had a very strong Q1. So the relation is strong. It continues to be strong and of course, we have goals to sell as much product to them as possible, but it would not be prudent for me to start speculating on their behalf, what they might or might not decide in the future. Matt Shimao: Thank you, Frank. Cole, next question please. Operator: And our next question will come from Fredrik Lithell with Danske Bank. Please go ahead. Fredrik Lithell: Thank you very much. Thank you for taking my question. Congratulations to a great result. I had a question on China. Maybe again, you alluded to that you had a good quarter there in Network Infrastructure. But I'm a little bit more interested in Mobile Networks and your refresh of your products and all that. We know that China has a new sort of tender ongoing in the second quarter. Are you -- is it your ambition to really step back into the Chinese market in terms of radio equipment products, or is it, so that you have inherited the view that it's not really profitable to be there, even though it might be good for your volumes, globally speaking. Thank you. Pekka Lundmark: We stand ready to serve the Chinese 5G market. And our customers there, it's highly innovative, of course, also a highly competitive market. And you're absolutely correct, that there will be new tender rounds coming later this year. We are investing in China. Our R&D units in China, for example, as one example, they are responsible for building our 700 megahertz 5G product for the Chinese market on top of our global platform. So we will participate in the upcoming tendering rounds. Then, what they may or may not lead to, it's too early to speculate. But we will participate. Matt Shimao: Thank you, Fredrik for your question. Cole let's move to our next one. Operator: And our next question will come from Dominik Olszewski with Morgan Stanley. Please go ahead. Dominik Olszewski: Hi. Afternoon everyone, just a brief one, whether you could clarify any potential impact from one of your licensees exiting the handset business, so, LG's exit from the handset business, and what does that mean for the business in 2021 and in 2022? Thank you. Pekka Lundmark: The LG situation should be looked at from a broader perspective. As I said, already earlier, we are number one in the world in 5G standard essential patents. We have a strong position there. We have recently closed new deals with handset makers. Without commenting any specific deals or any specific customers, what we have to keep in mind is that, if one producer would exit the market, those volumes would then go to some other vendors. So we would most likely benefit that way, because we are so strong across this whole field. So we should not focus too much on individual customers but look at the big picture. And the 5G volumes, of course, in general, are expected to grow. In licensing, in general, of course, in 5G, it will not only be about phones, it will also be increasingly about different types of IoT devices and different connected devices that will also need the license for, many of the technologies that we are providing. Matt Shimao: Great, thank you, Dom Olszewski. Cole let's go to our next question please. Operator: And our next question will come from Stefan Slowinski with Exane BNP Paribas. Please go ahead. Stefan Slowinski: Great. Thanks for taking my question. Just one for Marco, just on cash flow, the guidance for the full year is, I believe, positive. Just wondering what it would take for you to move that up to clearly positive, obviously, after a very strong Q1. And the comments you made about seasonality, does that apply for cash flow as well, meaning that we may not get the big Q4 we typically get? And is that one of the reasons you might be holding back from nudging up the cash flow guidance? Thank you. Marco Wiren: Yeah. Thank you, very good point. And definitely, you are right that seasonality is also the same for the cash flow that we have a very good start of the year. As I mentioned that in Q2, we will have much more cash outflow. And then, of course, if you look Q1, normally in Q1, we actually increase our inventories. At this time, actually, we didn't. The normal increase is between €200 million, €300 million, and that will come. In addition that we might increase also inventories beyond that because of the uncertainty of the component supply. And we definitely want to secure that we have enough inventories on the semiconductor side. So these are the factors that are affecting the cash flow. And that's why we haven't changed our full year guidance on the cash flow we keep it on positive side. Matt Shimao: Thank you, Stefan. Cole, next question please. Operator: And our next question will come from Aleksander Peterc with Societe Generale CIB. Please go ahead. Aleksander Peterc: Hi. Good afternoon. And thank you for taking my question. I'd just like to come back a little bit on Mobile Networks. So your message is clear that the impact of the non-conversion of 4G footprint to 5G at Verizon that, that impact is going to amplify throughout the year. To what extent do you think there's a possibility that you may be able to offset this negative momentum by share gains that you saw outside of North America for geopolitical reasons and other, if you could comment on that? Thank you. Pekka Lundmark: Thank you. And that's also a great question, because there is a lot of kind of happening to market shares with many of the operators. We estimate that if you take those operator decisions where for various reasons, operators have shifted market shares in -- especially Europe between 2019 and today, we have captured about half of the value of these opportunities. But, of course, compared to North American operators, many of these are smaller and then very important to keep in mind that typically, especially if you do swaps, your first year and sometimes your second year profitability is low, and then it gradually starts to increase. If I may add one thing when it come -- when we talk about the 4G, 5G shift, which makes us actually confident about this is really that we are now seeing that in this shift where 4G volumes are going down and 5G volumes are going up, we are now seeing a strengthening gross margin in 5G when the volumes have started to go up and when our product maturity increases including the ReefShark shipments. And it is now starting to be visible in gross margin. So we are fairly confident that we are able to mitigate a lot of the impact of North American market share. But this is not something that will happen in one quarter or two because, once again, they are big customers, and many of the replacing customers are quite lot smaller. Matt Shimao: Thank you, Alex for your question. Cole, we’ll take a next question please. Operator: And our next question will come from Achal Sultania with Credit Suisse. Please go ahead. Achal Sultania: Hi, thanks for taking the question. Just on the optics business, can you just help us understand your product portfolio cycle where we are on both 400-gig and 800-gig product launches? Clearly, I think there's been a few new product launches from your competitors around 800-gig. And that is something, which has become quite topical with a number of operators. So can you just help understand where Nokia's product portfolio cycle is on the optics side? Thanks. Pekka Lundmark: Yeah. We will -- we have launched our PSE-V platform that basically addresses the big shift in the market, which will increase the speeds to 200 -- mainly 200 and 400 gigabits per second. We have optimized this platform for performance, cost-to-performance ratio in the highest volume applications as we believe that there will be. 800-gig will be there as well. We can do that basically with two 400-gig line cards already now in this portfolio in a very competitive way. It will be a very small part of the market initially. And then, of course, by the time it will become a volume market, we will then again have new generations available, but we are very confident that our portfolio strategy as we are now laying it out for the different parts of the network, long-haul networks, metro networks separately, that it is a competitive strategy. And PSE-V platform deliveries will be a key element of that. Matt Shimao: Thank you, Achal. Cole, let’s take our final question for today. Operator: And our final question will come from Paul Silverstein with Cowen. Please go ahead. Paul Silverstein: I appreciate India was the source of strength in the quarter. Can you address what you're seeing and hearing with respect to the pandemic's impact on demand in the current quarter and the back half of the year? Is the flare-up impacting any service provider deployment plans as one would think? Pekka Lundmark: Yeah. Thank you. I mean, pandemic, obviously, has several different impacts in different parts of the world. Overall, it seems that because the network traffic has increased so much, it is driving our customers' investments because of working from home and so on. Then, of course, different question is that how then the economic impact indirectly will affect it. And there, the jury is still out. We are, of course, following very carefully the situation, for example, in India, where the pandemic situation is pretty bad that what the consequences to the economy will be. But so far, I would say that the total impact to us has been probably more on the positive side because we are seeing that our customers are ramping up investments quite a lot. Matt Shimao: Great. Thank you, Paul, for your question. And thank you, everyone, for your questions today. Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified these in more detail in the section titled, operating and financial review and prospects, risk factors of our 2020 annual report on Form 20-F, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you. Operator: And the conference has now concluded. Thank you for attending today's presentation. And at this time, you may now disconnect your lines.NOK Ratings Summary
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Nokia Stock Gains 3% Following Q1 Results
Nokia (NYSE:NOK) shares rose more than 3% pre-market today despite the company's announcement of a Q1 profit that was smaller than expected, affected by subdued demand for 5G equipment in North America and India.
The Finnish telecommunications equipment maker recorded a first-quarter operating profit of 597 million euros, up from 479 million euros the previous year. However, this was below the 663 million euros analysts had projected.
Earnings per share for the first quarter were 0.09 euros, slightly above the consensus estimate of 0.08 euros. Revenue for the quarter was reported at 4.67 billion euros, falling short of expectations of 5.41 billion euros.
Despite the revenue shortfall, Nokia saw a significant improvement in its comparable gross margin, which increased to 48.6% from 37.7% in the same quarter last year.
The Mobile Networks segment, which includes 5G equipment, saw a 37% drop in sales when adjusted for currency effects. Nokia described this quarter as the lowest point of the year and expects sales to rebound for the remainder of 2024.
Nokia maintained its January guidance, predicting a comparable operating profit for 2024 to be between 2.3 billion and 2.9 billion euros.
Nokia Shares Drop 8% After Preliminary Q2 Earnings
Nokia (NYSE:NOK) announced preliminary results for the Q2 that were below expectations, leading to a more than 8% decline in its shares on Friday.
Nokia anticipates Q2 sales of 5.7 billion euros, falling short of the Street estimate of 6 billion euros. The company also expects a comparable operating profit margin of 11%.
Consequently, Nokia has revised its full-year sales forecast to a range of 23.2-24.6 billion euros, which is lower than the previously anticipated range of 24.6-26.2 billion euros. The outlook for the comparable operating margin range has also been narrowed to 11.5-13%, compared to the previous range of 11.5-14%.
In an update, Nokia explained that these adjustments primarily pertain to its Network Infrastructure and Mobile Networks business groups. The company attributed the weaker demand outlook for the latter half of the year to a combination of macroeconomic factors and customers' inventory management. Customer spending plans have been increasingly affected by high inflation and rising interest rates, leading to delays in certain projects, notably in North America, which is now expected to occur in 2024.
Nokia Shares Drop 8% After Preliminary Q2 Earnings
Nokia (NYSE:NOK) announced preliminary results for the Q2 that were below expectations, leading to a more than 8% decline in its shares on Friday.
Nokia anticipates Q2 sales of 5.7 billion euros, falling short of the Street estimate of 6 billion euros. The company also expects a comparable operating profit margin of 11%.
Consequently, Nokia has revised its full-year sales forecast to a range of 23.2-24.6 billion euros, which is lower than the previously anticipated range of 24.6-26.2 billion euros. The outlook for the comparable operating margin range has also been narrowed to 11.5-13%, compared to the previous range of 11.5-14%.
In an update, Nokia explained that these adjustments primarily pertain to its Network Infrastructure and Mobile Networks business groups. The company attributed the weaker demand outlook for the latter half of the year to a combination of macroeconomic factors and customers' inventory management. Customer spending plans have been increasingly affected by high inflation and rising interest rates, leading to delays in certain projects, notably in North America, which is now expected to occur in 2024.
