Nokia’s Q2 numbers hit by Indian sales slump

For mobile networks, Nokia said a ‘challenging spending environment continues’. India was particularly impacted in this regard, with sales in that region driving nearly three-quarters of the decline, where it enjoyed a comparatively strong quarter in 2023.

Overall sales came in at €4.5 billion, down from €5.4 billion YoY, and operating profit was down to €423 million from €619 million YoY. Nokia's shares were down 8% by around 7.00 GMT this morning, according to Reuters.

In terms of Nokia’s business units, sales in Network Infrastructure were down 11% YoY, Mobile Networks by 25%, Cloud and Network Services by 17%. Sales at Nokia Technologies meanwhile were up 7%.

On the challenges faced by the kit vendor in the quarter, Pekka Lundmark, President and CEO of Nokia said: “Our financial performance in the second quarter continued to be impacted by the ongoing market weakness with net sales declining 18% year-on-year in constant currency. The most significant impact was the challenging year-ago comparison period which saw the peak of India's rapid 5G deployment with India accounting for three quarters of the decline.”

North America net sales meanwhile increased, benefitting from ‘resolution of outstanding contract negotiation’ and growth in network infrastructure.

Order intake trends continued to improve in Q2, says Nokia, particularly in network infrastructure ‘which supports expectation for significant improvement in net sales in second half of 2024.’

Lundmark added: “I am pleased to confirm that the improving order intake momentum we’ve talked about for the past couple of quarters has continued in the second quarter across the group and most notably in Network Infrastructure. This trend means our backlog further expanded and we look forward to a meaningful improvement in net sales in the second half. Generally, the market remains uncertain, so we will continue to be agile and prudently manage our cost base as we navigate this environment.”

This follows on from Q1 results in which sales were down 19% YoY, but its gross margin improved by ten percentage points, resulting in a 52% YoY profit increase, during which it enjoyed an exceptional quarter from its technology licensing division, for which gross margin is 100%.

Looking forward, Nokia expects a ‘somewhat greater than average’ sequential increase in Q3 2024 and ‘significantly greater than average’ in Q4 2024. It also expects a largely stable operating margin in Q3 thanks to contract resolutions in Q2, and then a ‘more significant improvement’ in Q4.

Lundmark added: “Looking forward, we believe the industry is stabilizing and given the order intake seen in recent quarters we expect a significant acceleration in net sales growth in the second half. While the dynamic is improving, the net sales recovery is happening somewhat later than we previously expected, impacting our business group net sales assumptions for 2024. Despite this, we remain solidly on track to achieve our full year outlook supported by our quick action on cost.” 

Nokia is putting a positive spin on it, but the impacts of the slowdown in RAN equipment from operators globally has been having an effect for a while. In October last year, Nokia announced it planned to cut up to 14,000 jobs over the next few years in a bid to save up to €1.2 billion, citing a challenging market environment.

Today’s report points to ‘significant progress with gross cost savings program, with €400 million run-rate of savings already actioned.’ Light Reading today reported 6,000 jobs have gone company-wide since September, largely from its mobile networks business group.

By comparison kit vendor rival Ericsson’s Q2 numbers were a bit more positive. It still clocked a sales decline of 7% but that was less than expected and an improvement on the previous quarter, buoyed by a return to growth in the North American networks segment. However it wasn’t looking so rosy in the rest of the world, and Ericsson has its ongoing challenges with regards to Vonage, which was again written down in value to the tune of $1.09 billion earlier this month.

The overriding problem facing both firms is of course a slump in the global RAN market. Omdia figures show that it declined by 11% in 2023 to just over $40 billion. At the time Omdia predicted the RAN market size will decrease by around 5% this year, which would be a slowed rate of decline at least.

The sales boost Ericsson clocked in North America during Q2, and Nokia’s stated optimism that some of that is coming it’s way later in the year may bend the needle into something more positive for them in the future – as perhaps will opportunities in the German market where an agreement has been reached that will see telcos remove Huawei from their core networks by 2026.