Nokia suffers as capex rebound fails to materialise in Q3

• Nokia has reported its third-quarter financial results
• The vendor had anticipated an uptick in spending in some parts of its business
• But the market is “turning slowly”
• Like its rival Ericsson, Nokia’s growth prospects mainly lie outside the telco sector
• “Datacentres will be our number-one growth target for the coming years,” stated CEO Pekka Lundmark during Nokia’s earnings conference call

The anticipated warm winds of a telco investment recovery predicted by Nokia earlier this year have turned out to be little more than a bitter breeze, resulting in worse-than-expected third-quarter revenues of €4.33bn, down by 7% year on year at constant currency rates.

“Overall, the big picture is that the market is turning, but it’s turning slowly,” stated CEO Pekka Lundmark. The slower-than-expected recovery resulted in a year-on-year uptick in revenues in only a few units within the Network Infrastructure division – fixed network (broadband) and IP routing, up by 9% and 6% respectively to €578m and €581m – but the optical networking unit’s revenues slumped by 15% to €366m, the Mobile Networks division reported a 17% decline in revenues to just €1.75bn and the Cloud and Network Services division, which houses a number of poorly performing legacy products as well as better performing product lines, such as 5G core, reported a 4% dip in sales to €702m. Nokia Technologies, which generates sales from the vendor’s intellectual property/patents, saw its revenues increase by 35% to €352m, but its performance is not reflective of market trends.  

The Mobile Networks division wasn’t expected to deliver any positive surprises – its numbers are being hit in particular by an ongoing and major slowdown in 5G spending in India and the loss of business at AT&T – and Nokia has now set a new (lower) target of €9.5bn for the division’s annual revenues that will enable it to deliver double-digit operating margins (it has been able to lower the target as the division’s operating expenses are now lower thanks to cost-cutting measures). The problem, though, is that while Nokia has been picking up new mobile network deals, they aren’t yet enough to get the division to that target, with its annual revenue run rate currently set for less than €8bn. 

And it’s going to be very hard to make up that shortfall, because there really isn’t any growth in the telecom infrastructure sector – in fact, quite the opposite at the moment – see This is why vendors are hurting.

Lundmark admitted on today’s webcast earnings call that the “telecom total addressable market will never be a significant growth market… the only way to grow will be through increasing market share, which of course we are targeting,” adding that the current value of that total addressable market in telecom right now for Nokia is €84bn. 

That there isn’t much in the way of growth prospects in telecom isn’t encouraging at all for Nokia or its peers (and certainly not its investors), which is why Lundmark is very focused right now on addressing non-telco sectors (more on that in a moment...)

But, of course, the telco infrastructure market is about much more than mobile, which is where Nokia’s Network Infrastructure division (fixed broadband, IP routing, optical) is focused and it’s that division which had been expected to deliver a stronger recovery in the second half of 2024. But it just hasn’t materialised (yet).     

“We were optimistic that areas like IP [routing] and fixed networks would start to recover in the second half of the year, as inventory dynamics would normalise and lower interest rates could help stimulate investment… I'm encouraged that we are now seeing an improving dynamic in fixed networks and IP networks, with the inventory issues now largely behind us. However, the overall market dynamic has clearly been weaker than anyone expected at the start of the year, and this continues to impact our net sales assumptions,” noted the CEO. 

Lundmark, though, is pumped about growth opportunities with enterprise customers, with private wireless networks (where Nokia already has nearly 800 customers), in the defence sector, and in the datacentre market, where there is not only business to be had from helping to build the high-capacity data network routes that connect the growing number of datacentres around the world but also from providing the optical technology that will increasingly be deployed inside datacentres to interconnect servers. That latter part of the equation – providing optical as well as IP routing technology for the ‘datacentre fabric’ – is a new focus for Nokia, but the vendor values that potential market at about €20bn, so there are some significant growth prospects in that part of the datacentre infrastructure market – and those prospects have been one of the main drivers behind Nokia’s planned $2.3bn acquisition of optical networking rival Infinera, a deal that was announced in June. 

Ahead of the completion of the Infinera deal (it’s expected to close in 2025), Nokia is already gaining business traction with datacentre operators, having previously secured deals with hyperscalers and having recently announced a significant deal with CoreWeave in the US to provide its IP routing and optical networking technology for a major backbone network rollout. 

Lundmark noted that Nokia’s focus on the datacentre market is “the very core of our strategy… datacentres will be our number one growth target for the coming years. There will be others as well, but that will be the number one. We already have references like Apple and Microsoft in this space, but CoreWeave is so important [because it is] the leading GPU-as-a-service company, and they have now taken pretty much our entire portfolio, both on the IP side and optical side. And as we know, AI is driving new business models. And one of the business models is clearly GPU-as-a-service. Even some of the operators like T-Mobile US [are] talking about an opportunity to look into GPU-as-a-service as an add-on to their business. And then there are the significant hyperscaler opportunities and smaller datacentre opportunities… We are already quite well exposed to datacentres on the IP side, but the Infinera deal will significantly increase our exposure on the optical side, and it will help us to get more and more inside the datacentre fabric,” enthused the CEO. 

That’s some way down the line, though, and the here and now for Nokia is keeping its current business, including its costs, in check. The company has been reducing its operating costs quite significantly – it has reduced its annual outgoings by €500m as part of its current efficiency drive that includes 14,000 job cuts – and that helped Nokia to improve its margins in the third quarter despite the lower sales. 

But those margin improvements weren’t enough to appease investors, as Nokia’s share price dipped more than 3.7% to €3.90 on the Helsinki exchange during Thursday trading.   

- Ray Le Maistre, Editorial Director, TelecomTV