Nokia sees light at the end of the 2024 tunnel

• Nokia’s revenues sunk by 19% in the first quarter of 2024
• Only the vendor’s patent licensing unit saw sales growth
• But there are signs of recovery, with the second half of the year looking better for Nokia’s important Network Infrastructure division

As anticipated, Nokia has had a tough financial start to 2024, reporting a 19% year-on-year dip in like-for-like first-quarter revenues to €4.67bn and a 6% dip in operating profit to €400m as customer spending in North America continues to be constrained and the massive 5G investment push by India’s two main operators tails off. 

The vendor’s Mobile Networks division has shrunk so much it is no longer the biggest of its business units by sales: Its revenues declined year on year by 37% to €1.58bn while the Network Infrastructure division (optical, IP routing, fixed broadband access and submarine networks equipment) reported a 26% decline in sales to €1.66bn, the vendor noted in its earnings announcement. 

The Cloud and Network Services unit reported a 13% dip in revenues to €652m but Nokia Technologies, which generates revenues from the company’s patents portfolio, reported a very helpful 216% increase in revenues to €757m as it started to benefit from new smartphone technology licensing deals and “catch-up” payments from customers that had previously been in dispute with Nokia.

With the new licensing deals in place, Nokia Technologies now has an annual revenues run rate of about €1.3bn, compared with less than €1bn prior to those agreements, and its sales are highly profitable. Nokia CEO Pekka Lundmark noted during the vendor’s Thursday morning earnings webcast that the division is “now focused on expanding into new growth areas to get the annual run rate up to €1.4bn-€1.5bn.” 

That would be good new business but not enough to make up for the downsides elsewhere in the portfolio. While Lundmark noted that mobile infrastructure revenues in North America and India were set to improve during the rest of the year from the first-quarter low point, the division is still on course to report a full year decline in sales of between 10% and 15%. 

But there is a shard of light at the end of the 2024 tunnel. Network Infrastructure division orders have been recovering during the past couple of months, especially for fixed broadband products, and the expectation is that full year revenues for the division will grow by as much as 8% as business improves during the second half of this year. “While we are conscious of the broader economic environment, considering the ongoing order intake strength, we expect Network Infrastructure will return to net sales growth for full year 2024 with a stronger second-half performance,” noted the CEO, who expects fixed broadband network equipment orders to come from US operators that have been awarded funds under the National Telecommunications and Information Administration (NTIA)’s Broadband Equity, Access and Deployment (BEAD) Program in the latter part of this year and then into 2025 and 2026.   

And like its rival Ericsson, which reported its first-quarter numbers earlier this week (and expects its sales to “stabilise” during the latter part of 2024), Nokia’s gross margins improved, despite declining sales: The vendor’s comparable gross margin hit 48.6% in the first quarter compared with 37.5% a year earlier, helped by the improved performance by Nokia Technologies and by the impact of the company’s cost-cutting efforts. The vendor announced in October last year plans to cut 14,000 jobs and, as a result, is on course to reduce its annual expenditure run rate by €500m this year.  

The improving margins and the expectation that the second half of 2024 will be less challenging gave Nokia’s share price a 1.3% boost to €3.20 in Thursday trading on the Helsinki exchange, but that still only values the entire company at about €18bn and in the past year the vendor’s stock has lost more than 26% of its value. That’s a sobering perspective not only for the Nokia management team but also for its peers. 

- Ray Le Maistre, Editorial Director, TelecomTV