Nokia set to shrink again in 2024

• Like its key rival Ericsson, Nokia had a very tough 2023
• Full year revenues dropped by 8% on a like-for-like basis
• The vendor expects sales to shrink again in 2024 as its mobile networks unit is suffering badly
• It doesn’t expect its AT&T mobile contract loss to have a knock-on impact elsewhere
• CEO talks of ‘green shoots’ for the second half of 2024 but this will come from its non-mobile networks units

It’s been a tough week for the major mobile network infrastructure vendors: In the wake of Ericsson’s grim 2023 financial results, Nokia has reported an 8% year-on-year decline in like-for-like revenues to €22.3bn and a 24% decline in comparable operating profit to €2.38bn, and expects its sales to shrink again this year, mainly due to a steep decline in mobile network infrastructure revenues. 

Basically, Nokia is going through a rough patch and it had a 2023 it would rather forget. It was already feeling the squeeze last year as telcos, particularly the three main operators in the US, cut their network investment budgets (with the two main operators in India being the main exception). As a result, Nokia announced a cost-cutting programme – see Nokia to cut up to 14,000 jobs as sales slump.

The Finnish vendor was then dealt a hammer blow by one of its main mobile network infrastructure customers, AT&T, which announced in November that it was shifting to an almost single-vendor supplier strategy for its radio access network (RAN) (and investing heavily in Open RAN-enabled systems), and giving that role to Ericsson – see AT&T goes big on Open RAN with Ericsson and Nokia licks its wounds over AT&T’s RAN rejection.

Now, as part of its earnings report, the company has shared a somewhat depressing outlook for the coming year, most particularly for its Mobile Networks division, which in 2023 reported full year revenues of $9.8bn, down 5% compared with 2022 on a constant currency basis, and an operating profit margin of 7.4%, down from 8.8% in 2022. For 2024, Nokia expects revenues for the Mobile Networks division to decline by between 10% and 15%, which would take the full year revenues to between $8.82bn and $8.33bn, while the division’s operating profit margin is expected to slump to between 1% and 4%. 

Part of that sales decline is due to the “normalisation” of telco spending in India, where the operators splashed €2.8bn on Nokia technology (of all kinds, not just radio access network gear) in 2023, but are on track to spend between €1.5bn and €2bn this year now that the initial national rollout of 5G by Reliance Jio and Bharti Airtel is drawing to a close. 

Then there’s the US market, where investment budgets are being squeezed further by the major operators this year. Nokia CEO Pekka Lundmark explained the company can’t say exactly what kind of impact the loss of the AT&T RAN business will have as the vendor and operator are still in discussions about how to deal with the remainder of a five-year contract that was struck in 2021. But the loss of the business to Ericsson (which expects to see ‘meaningful revenues’ from that Open RAN deal in the second half of this year) is clearly going to weigh on the Mobile Networks unit’s numbers in 2024. 

Financial analysts on Nokia’s earnings webcast were keen to know if Nokia had seen any signs that the AT&T contract with Ericsson might spark a flurry of similar Open RAN deals where one major vendor picks up the majority of the spoils.

Lundmark noted that he hadn’t seen any evidence to suggest that the AT&T move was more than an isolated case, but he took the opportunity to suggest that the US operator’s new deployment with Nokia’s Swedish rival might not end up being “true Open RAN” because it is so concentrated with one vendor. It should be noted, though, that AT&T also plans to use Fujitsu radios connected to Ericsson distributed and centralised units as part of the rollout. 

Nokia “has two true Open RAN deals – one with NTT Docomo and one with Deutsche Telekom” where, according to Lundmark, Nokia’s distributed unit (DU) and centralised unit (CU) platforms are connected to radio unit technology from five other vendors over standardised fronthaul interfaces. The Nokia CEO also cited a Dell’Oro Group forecast that Open RAN technology would account for 24% of the total RAN market by 2028, which would value it at around $8bn to $10bn, up from an expected $2.45bn to $3.5bn this year. 

Overall, though, Nokia, like its rival Ericsson, expects total spending in the mobile networking sector to bounce back from its current low level, as the majority of RAN sites outside of China are not yet upgraded for optimum 5G mid-band spectrum or for 5G standalone (SA) capabilities – it’s just that no-one knows when that uptick might happen.

The vendor’s Network Infrastructure division (optical, IP routing, fixed broadband access and submarine networks equipment), which reported a 9% slump in sales at constant currency levels last year to just over €8bn and a slight increase in operating profit margin to 13.1% (from 12.2%), is set to fair better. Here, annual revenues for 2024 are expected to increase year on year by between 2% and 8%, which would take it to just over €8.6bn at the top end of the range. 

The Cloud and Network Services division, meanwhile, reported a 1% decline in full year sales (at constant currency levels) to €3.2bn, while its operating profit margin improved slightly to 7.9% from 5.3%. For 2024, full year sales could decline slightly, by 2%, or improve slightly, by up to 3%, so not a great deal of change is expected. 

The outlook for Nokia Technologies, which generates revenues from the company’s patents portfolio, is more opaque but it’s the smallest division in the company, with 2023 revenues of just over €1bn due to the delayed completion of some licensing deals: Revenues will be higher this year. 

Overall, the forecasts add up to another year of overall decline for Nokia, though it does expect to see some “green shoots” of recovery in the second half of 2024. Those shoots will likely come courtesy of the Network Infrastructure division as government-aided fibre broadband programmes kick in and optical investments (a bright spot for Nokia in 2023) continue to improve. 

Full year operating profit for 2024 is expected to total between €2.3bn and €2.9bn, which would represent a slight increase on this year’s figures: That’s not much of a victory, but it would be something.

Lundmark has his work cut out to claw the company back to growth and repair its reputation, which was damaged as a result of the AT&T decision. He’ll be hoping that 2023 turns out to be the bottom of the curve. 

- Ray Le Maistre, Editorial Director, TelecomTV