Nokia fixes its sights on further growth after strong Q2

• Nokia reports encouraging second quarter financials
• Network Infrastructure division (fixed, IP, optical) reports double-digit growth
• Raises its full year sales and margin guidance 
• Improvements reflected in valuation, up >60% this year

Has a tide turned for Nokia? The Finnish vendor has reported second quarter revenues of €5.3 billion – up by 4% year-on-year in reported numbers but up by 9% once currency exchange rate fluctuations are stripped out – and as promised earlier this month it has raised its sales and profit margin guidance for the full year on the back of improving business trends. 

Nokia now expects its full year revenues to come in at around €22.2 billion (the mid-mark of its range), compared with the previous expectation of €21.2 billion, while its “comparable operating margin” (which excludes a number of variables and one-time items) for 2021 is now expected to be in the 10-12% range, up from 7-10%. 

The improving financial position is reflected in Nokia’s share price, which is up 7% today and which has gained 67% since the start of the calendar year to stand currently at €5.30, giving the company a market capitalization of €30 billion. To put that into perspective, though, its entire market capitalization figure is far less than a single quarter’s sales reported by the likes of Apple, Google or Microsoft.

And while things are going better than expected, CEO Pekka Lundmark reminded the market that it’s not all plain sailing. “We have executed faster than planned on our strategy in the first half which provides us with a good foundation for the full year. We still however expect to face the earlier communicated headwinds in the second half, particularly with market share loss and price erosion in North America. Therefore, we still expect our typical quarterly earnings seasonality to be less pronounced in 2021. In addition, we continue to accelerate R&D investments and monitor risks around component availability, considering the strong demand for our products,” he noted in the company’s earnings announcement. 

But there’s no doubt that Nokia has a spring in its step, so what is fuelling Nokia’s growth and confidence boost? Its broad portfolio, which covers fixed as well as wireless network infrastructure, is certainly helping.

While its Mobile Networks division is still its largest, with second quarter sales of €2.38 billion, it’s still in recovery mode after the broadly-reported poor start to the 5G network deployment era, but its prospects, as well as the suitability of its portfolio, are steadily improving, as is its operating margin which now stands at 9.2% compared with 4.3% a year ago. (See Nokia pulls up its SoCs for 5G and Ericsson takes a hit in China Mobile’s latest 5G contract awards… and Nokia gets a slice of the pie.)

Its growth engine right now is the Network Infrastructure division, which includes its fixed access, IP, optical and submarine networking products. Its second quarter revenues came in at €1.78 billion, up by 15% year-on-year in reported numbers and up by 20% at constant currency rates. Its second quarter operating margin stood at 3.7%, compared with negative margin of 3.2% a year ago.  

While all the lines of business within the Network Infrastructure division are growing, the Fixed Networks unit (fixed access broadband including all the FTTH/P gear) is on a tear: Its second quarter revenues came in at €531 million, up by 21% in reported numbers and up by 28% at constant currency rates. That will be driven by demand for next-generation PON systems, as highlighted earlier in the year by the division’s President Federico Guillén when he spoke with TelecomTV. (See Fibre now as critical as 5G to operators: Nokia’s Guillén.)

Nokia’s Cloud and Network Services division is still a bit of a mixed bag, with Core network platform and private wireless sales increasing – the vendor now has more than 150 5G Core customers and 340 private wireless customers – but cloud, BSS and AI solutions are not doing well, with some “poorly performing projects” dragging on the division, which reported sales of €703 million, down 2% in reported numbers but up 2% at constant currency. 

The vendor’s fourth division, Nokia Technologies, which manages its patent portfolio, reported an 18% year-on-year increase in reported sales to €401 million, helped by significant deals with automotive companies such as Daimler.   

“I am delighted that our strong start to 2021 continued in the second quarter,” noted Lundmark. “Our constant currency sales growth of 9%, combined with good cost control, enabled us to deliver a comparable operating margin of 12.8%. Even excluding a one-time software deal in Mobile Networks, we saw good underlying progress in operating margin. We are already seeing the benefits of our new operating model which helped us to deliver such a strong financial performance,” he added.

- Ray Le Maistre, Editorial Director, TelecomTV