(Bloomberg) – Nokia Oyj reported weaker-than-expected earnings, amid slowing demand for its 5G equipment in some of the company’s more mature markets.
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Adjusted operating profit was 479 million euros ($525 million) for the first quarter, the Espoo, Finland-based mobile network company said in a statement Thursday. That compares to an average analyst estimate of 544 million, according to a Bloomberg survey. Adjusted earnings per share were 6 cents, lower than analysts’ estimate of 7 cents.
Shares fell 4.2% at 10:48 a.m. in Helsinki, extending losses from a year ago to 15%.
“Nokia is starting to see signs of the impact of the economic environment on customer spending,” CEO Pekka Lundmark said in the statement. “Given the ongoing need to invest in 5G and fibre, we view this primarily as a matter of timing; nevertheless, we will maintain our cost discipline to ensure that we can successfully navigate this uncertainty. »
Growing economic headwinds seen in the fourth quarter continued to put pressure on 5G equipment vendors, with sales shifting to low-margin markets like India and spending at U.S. carriers declining. The ramp-up of deployments in India during the quarter more than offset a slowdown in spending in North America, Nokia said.
“Now that the semiconductor and the overall supply chain are working much better, two things are happening: there is to some extent a slower pace of construction and, on top of that, there is a digestion of stocks,” Lundmark said in an interview. “So that is the cause of the weakness. We think we’ll see pretty similar trends in Q2 as we saw in Q1.
Earlier in the week, rival Ericsson AB reported better-than-estimated profits but warned of a “shaky” 2023 that would see margins under pressure. Nokia said it expects profitability in the second half of the year to be stronger than in the first half.
The Finnish company maintained its operating margin target of 11.5% to 14% this year, compared to 12.5% in 2022, on a comparable basis. The sales outlook is unchanged, adjusted for exchange rate fluctuations, with an increase to 26.2 billion euros expected for this year. Analysts in a Bloomberg survey forecast average net sales of 25.6 billion euros.
“What gives us confidence is that at a single data point, only about 50% of US 5G sites have been upgraded so far,” Lundmark said. “So there’s still a long way to go.”
Nokia also said it had agreed to divest part of its radio frequency systems and VitalQIP businesses as part of a plan to actively manage its portfolio and “secure a leadership position across all segments.” where we decide to be competitive”. He also recently agreed to sell his stake in the TD Tech joint venture.
The agreements are “concrete proof” that active portfolio management “isn’t just a conversation, we’re doing it,” Lundmark said.
In the first quarter, Nokia clawed back its investment grade credit rating it had lost more than a decade earlier as it posted losses in its handsets business, which it has since divested. It immediately took advantage of the higher rating by raising €500 million from the sale of its first sustainability bond.
(Updates with shares, third paragraph CEO comment)
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