Nokia Corporation has released its financial results for the third quarter (Q3). The company’s net sales declined by 15 per cent year-on-year (YoY) in constant currency as macroeconomic uncertainty and higher interest rates continue to pressure operator spending. Enterprise net sales grew 5 per cent YoY in constant currency.
Meanwhile, the comparable gross margin declined 120bps YoY to 39.2 per cent due to regional mix in mobile networks. Sequentially mobile networks gross margin improved 140bps due to a favourable regional mix. Comparable operating margin declined YoY by 200bps to 8.5 per cent. Comparable diluted earnings per share (EPS) was EUR 0.05, while reported diluted EPS was EUR 0.02.
Nokia continues to expect full-year 2023 net sales in the range of EUR 23.2 to 24.6 billion with a comparable operating margin in the range of 11.5 per cent to 13 per cent assuming closure of outstanding deals in Nokia Technologies.
Commenting on the results, Pekka Lundmark, president and chief executive officer, Nokia, said, “Our third quarter performance demonstrated resilience in our operating margin despite the impact of the weaker environment on our net sales. In the last three years we have invested heavily to strengthen our technology leadership across the business giving us a firm foundation to weather this period of market weakness. We continue to believe in the mid to long-term attractiveness of our markets. Cloud computing and artificial intelligence (AI) revolutions will not materialise without significant investments in networks that have vastly improved capabilities. However, given the uncertain timing of the market recovery, we are now taking decisive action on three levels: strategic, operational and cost. I believe these actions will make us stronger and deliver significant value for our shareholders. First, we are accelerating our strategy execution by giving business groups more operational autonomy. Second, we are streamlining our operating model by embedding sales teams into the business groups and third, we are resetting our cost-base to protect profitability. We target between EUR 800 million and EUR 1,200 million in cost savings by 2026. These actions keep us on track to deliver our long-term target comparable operating margin of at least 14 per cent by 2026. In the third quarter we saw an increased impact on our business from the macroeconomic challenges that are pressuring operator spending, resulting in a 15 per cent net sales decline in constant currency compared to the prior year. Network infrastructure declined 14 per cent due to weaker spending impacting IP networks while fixed networks was impacted by the same challenge combined with customer inventory digestion. In mobile networks net sales declined 19 per cent as we saw some moderation in the pace of 5G deployment in India which meant the growth there was no longer enough to offset the slowdown in North America. Cloud and networks services proved more robust in the quarter with a 2 per cent decline and continued to benefit from strong growth in the enterprise solutions business. Considering the net sales decline, our comparable operating margin of 8.5 per cent proved resilient due to our continued cost discipline and some additional other operating income in the quarter. Positively we saw a sequential improvement in our mobile networks gross margin as regional mix is starting to become more favourable along with continued improvements on product cost.”
He added, “In Nokia Technologies we remain confident the business group will return to a net sales annual run-rate of EUR 1.4-1.5 billion as we work through the smartphone licence renewal cycle and continue to grow in new areas. We had a number of important product launches in the quarter as we continue to invest for technology leadership. In IP Networks, we announced our new FPcx routing silicon which helps us to extend the high-performance capabilities of our IP Networking silicon further across the network to provide a broader range of applications to customers. In cloud and Network Services we launched our organically developed network as code platform enabling developers and service providers to accelerate the use and monetisation of 5G and 4G assets through network application programming interfaces (APIs). We have significant interest from operators globally and we have already signed four agreements.
Lundmark concluded, “Looking forward, while our third quarter net sales were impacted by the ongoing uncertainty, we expect to see a more normal seasonal improvement in our network businesses in the fourth quarter. Based on this and assuming we resolve the outstanding renewals impacting Nokia Technologies, we are tracking towards the lower end of our net sales range for 2023 and towards the mid-point of our comparable operating margin range.”