Nokia Corporation has released its financial results for the second quarter (Q2) and half year 2023. The company’s net sales remained flat in constant currency, while enterprise net sales grew 27 per cent year-on-year (YoY).
Meanwhile, the comparable gross margin declined 180bps YoY to 38.8 per cent due to regional mix in mobile networks, partly offset by a strong network infrastructure margin and catch-up net sales in Nokia Technologies. Comparable operating margin declined YoY by 120bps to 11 per cent due to the above-mentioned factors impacting gross margin, partly offset by lower operating expenses and higher other operating income. Comparable diluted earnings per share (EPS) was EUR 0.07, while reported diluted EPS was EUR 0.05. As announced on 14 July 2023, Nokia now expects full-year 2023 net sales in the range of EUR 23.2 billion to EUR 24.6 billion with a comparable operating margin in the range of 11.5 per cent to 13 per cent.
Commenting on the results, Pekka Lundmark, president and chief executive officer, Nokia, said, “In Q2 we delivered stable net sales in constant currency compared to the prior year. As a result of prudent management of our costs, we were able to deliver a solid comparable operating margin of 11 per cent despite the regional mix headwinds faced in our mobile networks business. Considering the significant decline in major North American operators’ investments, our operating margin has proved resilient, even adjusting for the EUR 80 million of catch-up net sales in Nokia Technologies. The highlight of the quarter was the new long-term patent license agreement signed with Apple. This is another major milestone in our smartphone license renewal cycle. Our performance in enterprise was also a highlight with net sales increasing by 27 per cent in constant currency illustrating how well we are executing on this strategic pillar. Our network infrastructure business saw a 6 per cent decline in net sales in constant currency as macro uncertainty impacted the business, particularly in IP networks which declined 11 per cent. We also saw a decline in fixed networks, driven by fixed wireless access and some modest inventory management, nonetheless fibre demand remains robust. In optical networks, we saw continued strength with 16 per cent growth. Supportive product mix in the quarter along with good cost discipline led to operating margin improving 160bps year-on-year. Our mobile networks business continued to benefit from 5G deployments in India offsetting on-going weakness in North America, delivering 5 per cent net sales growth in constant currency. Gross margin was largely in line with Q1 and continued cost discipline led to an operating margin of 7.9 per cent in Q2. Cloud and network services achieved net sales growth of 2 per cent in constant currency and delivered a 2.2 per cent operating margin in the quarter. We recently announced a strategic partnership with Red Hat for cloud infrastructure, another important milestone on the path to rebalancing the portfolio. Nokia Technologies’ annual net sales run-rate remained approximately EUR 1.0 billion in Q2 excluding the catch-up benefit. Considering our current base of agreements, we now see that our net sales annual run-rate would be EUR 1.1 billion from January 2024, subject to any other material developments. We remain confident Nokia Technologies will return to an annual run-rate of EUR 1.4-1.5 billion as we work through the smartphone license renewal cycle and grow in new areas.”
He added, “Earlier in the year I highlighted that we were starting to see signs of macroeconomic challenges along with inventory digestion impacting customer spending and this has intensified through the second quarter. In the second half, we expect these trends to continue to impact our business, meaning we now see second half net sales broadly similar to the first half in both Network Infrastructure and Mobile Networks with some sequential improvement visible into Q4. We have therefore reduced our net sales outlook for 2023 to EUR 23.2 billion to EUR 24.6 billion from the prior EUR 24.6 billion to EUR 26.2 billion. Proactive action by our business groups to manage cost is largely mitigating the impact to our operating margin and hence we only narrow the range to 11.5 per cent to 13.0 per cent from the prior 11.5 per cent to 14 per cent.
Lundmark concluded, “Looking beyond 2023, in network infrastructure we believe these impacts are mostly short-term in nature and that moving forward we see growth opportunities supported by the work we have been doing to diversify our customer base by growing in enterprise and webscale. In mobile networks there is still substantial need for operators to invest in 5G globally with only approximately 25 per cent of the potential mid-band 5G base stations so far deployed outside China. We also remain focused on taking the necessary actions to improve our operating margin to double-digit. For the group we remain committed to achieving at least 14 per cent comparable operating margin longer-term. Finally, given the strength of our balance sheet and EUR 3.7 billion net cash position I am confident we have a firm foundation from which to navigate this period of uncertainty. I would like to thank all the Nokia employees for their hard work, cost focus and continued commitment.”
