Nokia Corporation has released its financial results for the fourth quarter (Q4) and full year ended December 2023. The company’s net sales declined by 21 per cent year-on-year (YoY) in constant currency as macroeconomic uncertainty and higher interest rates continue to pressure operator spending. Full-year net sales declined 8 per cent YoY in constant currency.
Meanwhile, the comparable gross margin declined 40 bps YoY to 43.1 per cent. Significant improvements in mobile networks and cloud and network services were offset by lower contribution from Nokia Technologies which benefited from a significant one-off in the prior year. During the quarter, the comparable diluted earnings per share (EPS) stood at EUR 0.10; while the reported diluted EPS was EUR -0.01. The figures for the full year were EUR 0.29 and EUR 0.12, respectively. Q4 reported EPS was impacted by an operating model change that led to non-cash remeasurement of deferred tax assets.
Nokia expects full-year 2024 comparable operating profit of between EUR 2.3 billion to EUR 2.9 billion and free cash flow conversion from a comparable operating profit of between 30 per cent and 60 per cent.
Commenting on the results, Pekka Lundmark, president and chief executive officer, Nokia, said, “In 2023 we saw a meaningful shift in customer behaviour impacting our industry driven by the macro-economic environment and high-interest rates along with customer inventory digestion. This led to our full-year net sales declining by 8 per cent in constant currency. Proactive action across our organisation meant we were able to protect our profitability while continuing to invest in R&D and we delivered a comparable operating margin of 10.7 per cent for the full year. This was a resilient performance considering the challenging environment and lower contribution from our high-margin patent licensing business as some renewals remained outstanding. Looking specifically at the fourth quarter those same factors drove a net sales decline of 21 per cent YoY in constant currency. Encouragingly we saw improvements in our gross margin across several of our businesses which, combined with continued cost discipline, helped us to deliver a strong comparable operating margin of 14.8 per cent. In addition, we have seen a significant improvement in order intake in the fourth quarter, particularly in network infrastructure, indicating at least some improvement in the overall spending environment. We delivered well in 2023 against our strategic pillar of growing in enterprise with 16 per cent net sales growth in constant currency and this customer segment now accounts for over 10 per cent of our group net sales. Growth in the fourth quarter was muted at -3 per cent in constant currency as we faced a tough comparison period. We continue to have strong momentum in this segment and expect another year of double-digit growth in 2024. In network infrastructure, we made important progress in a number of areas in the quarter. We received further webscale orders for our IP routing business which supports our expectations of significant growth in webscale in 2024. In the fourth quarter, we also saw good progress in the US government initiatives in fixed networks and we continue to expect these programs to increasingly benefit our net sales in the second half of 2024 and into 2025. The fourth quarter also saw us sign a new and significant customer in Asia for our fixed wireless access products. In optical networks we continue to have good momentum and our new PSE-6s solutions are proving their capabilities in the field; recent live network trials set a new record of 800Gbps transmission on a single wavelength over 6,600km. Mobile networks net sales performance continued to be challenging in the fourth quarter, but we did see a further important improvement in gross margin which benefited from a product mix shift towards software. AT&T’s announcement in December to move to a largely single-sourced radio access network (RAN) was a disappointing development. It does not reflect the technological competitiveness we have achieved with our products as evidenced by our significant increase in RAN market share in recent years. I firmly believe we have the right strategy in place for mobile networks to create value for our shareholders into the future with opportunities to gain share, diversify our business and achieve a double-digit operating margin longer-term. Our cloud and network services business had a strong year. We had a slight decline in net sales for the full year, but we made progress on profitability with a largely stable gross margin and improved operating margin. The business continued to rebalance its portfolio, with the divestment of its device management and service management platform businesses in December. During 2023, we led the industry trend towards programmable networks with the launch of our network as code platform which now has nine commercial agreements and we also achieved our first commercial deal for 5G core as a service to communications service providers.”
He added, “In Nokia Technologies, we signed significant long-term deals with both Apple and Samsung in 2023 and we also signed a deal with Honor late in the year. I am also pleased that we have now signed a multi-year agreement with OPPO and we are close to concluding another agreement in China. After these, we are in the final stages of our smartphone license renewal cycle with only one other, recently expired, major agreement outstanding. This provides long-term stability to our Nokia Technologies business which will continue to focus on growing our licensing run-rate in new growth areas including automotive, consumer electronics, IoT and multimedia. I remain confident that with growth in these areas we can return to an annual net sales run-rate of EUR 1.4 to 1.5 billion in Nokia Technologies in the mid-term. A clear positive in the fourth quarter was our cash flow performance. We generated EUR 1.7 billion of free cash flow as we saw a significant improvement in working capital in the quarter supported by a partial prepayment of a licensing agreement. We ended the year with a net cash position of EUR 4.3 billion. The board is proposing a dividend of EUR 0.13 per share in respect of the financial year 2023 and considering we now hold excess cash at the end of the year, the board is also instituting a new share buyback program of EUR 600 million to be executed in the next two years.”
Lundmark concluded, “Looking ahead, we expect the challenging environment of 2023 to continue during the first half of 2024, particularly in the first quarter. However, we are now starting to see some green shoots on the horizon, with improving order intake for network infrastructure and some of the specific deals we have won. This is expected to drive a strong improvement in network infrastructure net sales growth in the second half of 2024 which we believe, even with a challenging first half, will drive solid growth for the full year. In mobile networks, we expect top-line challenges in 2024 related to a more normalized pace of investment in India and the AT&T decision. We do expect further improvement in gross margin and then in the second half, we will start to see more benefits from our cost savings program. At the Nokia level, we currently estimate that we will deliver a comparable operating profit of between EUR 2.3 and 2.9 billion in 2024. We also target to deliver an improved free cash flow performance with conversion of between 30 per cent and 60 per cent.”
