Nokia Corporation has released its financial results for the first quarter (Q1) of 2023. The company’s net sales grew by 9 per cent year-on-year (YoY) in constant currency, while enterprise net sales grew 62 per cent YoY.
Meanwhile, the comparable gross margin declined 300bps YoY to 37.7 per cent due to regional mix and a lower contribution from Nokia Technologies partly related to a licence option exercised in Q4 2022. Comparable operating margin declined YoY by 270bps to 8.2 per cent due to the above-mentioned factors impacting gross margin along with a significant swing in venture fund contribution, somewhat offset by disciplined cost control. The reported operating margin increased 70bps YoY to 7.3 per cent. In addition to the above factors, the margin increased due to a provision recognised in the prior year compared to a partial reversal this year along with a divestment-related gain. The company reported comparable diluted earnings per share (EPS) of EUR 0.06.
Commenting on the results, Pekka Lundmark, president and chief executive officer, Nokia, said, “We started this year with the unveiling of a renewed corporate strategy and refreshed brand. This reflects who we are today – a B2B technology innovation leader unleashing the exponential potential of networks. Q1 also saw the launch of our new industry-leading optical networking platform PSE-6s and AirScale Habrok, our latest 5G massive multiple-input and multiple-output (MIMO) radios powered by a new generation of ReefShark chipsets. Both products are designed to help our customers achieve more with lower power consumption, supporting our intent to develop environmental, social, and governance (ESG) into a competitive advantage. Financially we delivered a solid start to 2023 with Q1 net sales growing 9 per cent in constant currency. Our comparable operating margin was 8.2 per cent, a decline of 270bps year-on-year, which was primarily due to expected greater seasonality in mobile networks’ profitability, a lower contribution from Nokia Technologies in the quarter and a negative impact from venture fund investments. Network infrastructure had another great quarter with 13 per cent constant currency net sales growth and continued operating margin expansion. We saw particular strength in optical networks and good growth in both IP networks and submarine networks. Mobile networks net sales grew 13 per cent as 5G deployments in India ramped up, more than offsetting a slowdown in North America spending. As we expected, we are seeing greater seasonality between the first and second half of the year in terms of profitability for mobile networks. Cloud and network services achieved net sales growth of 3 per cent in constant currency, but profitability was impacted by product mix. Nokia Technologies net sales declined 22 per cent in the quarter, which was largely due to a long-term licence which is no longer contributing after an option was exercised in Q4 2022. We remain confident Nokia Technologies will return to an annual run-rate of EUR 1.4-1.5bn of net sales.”
Lundmark further added, “We maintained our strong momentum in enterprise with 62 per cent net sales growth in constant currency. We continue to make good progress in both webscale and private wireless and we expect to see strong double-digit growth for the full year. One of our strategic pillars is to actively manage our portfolio to secure a leading position in all segments where we decide to compete. To support that goal, we have signed agreements to divest part of our radio frequency systems business and our VitalQIP business. In addition, we recently agreed to the sale of our stake in the joint venture TD Tech, subject to closing conditions. Looking forward, we are starting to see some signs of the economic environment impacting customer spending. Given the ongoing need to invest in 5G and fibre, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty. We remain on track to deliver another year of growth in 2023 so our outlook is unchanged with the expectation that profitability in the second half of the year will be stronger than the first half.”