Nokia surpassed profit expectations and anticipates a rebound in demand during the latter half of the year. Despite sluggish sales in 5G equipment, the Finnish telecom gear maker achieved a better-than-expected quarterly operating profit by effectively managing costs. Telecom equipment suppliers like Nokia and competitor Ericsson are bracing for a challenging year due to reduced investments by mobile operators in new 5G gear.
The 2023 capital expenditure of U.S. telecom operator Verizon dropped to $18.8 billion from $23.1 billion in 2022, with plans to further cut spending to a range between $17 billion and $17.5 billion this year. Weaker demand has led companies like Nokia and Ericsson to implement cost-cutting measures, including job reductions, to enhance profitability. Nokia’s comparable earnings before interest and tax (EBIT) declined to 846 million euros ($920.2 million) from 1.15 billion euros in the same quarter the previous year but surpassed analysts’ expectations.
Profit received a boost from improved gross margins as sales shifted towards software. J.P. Morgan analysts characterized the results as strong in a challenging environment. Nokia’s shares saw a rise of about 7% in early morning trade, making it the leading gainer on the pan-European STOXX 600 index.
The company foresees a comparable operating profit for 2024 in the range of 2.3 billion euros to 2.9 billion euros, surpassing LSEG estimates of 2.38 billion euros. Nokia’s CEO, Pekka Lundmark, expressed optimism about signs of recovery in network infrastructure and expects a demand upswing in the second half of the year. Lundmark cited an improvement in order intake driven by demand from major technology firms and government spending on infrastructure.
Nokia, which announced plans in October to cut up to 14,000 jobs, recently inked a patent deal with Chinese smartphone manufacturer Oppo and is on the verge of resolving a dispute with another company. Despite these positive developments, CEO Lundmark disclosed Nokia’s withdrawal from its Chinese joint venture with Huawei. The joint venture holding company, TD Tech Holding, had agreed to sell the entire business to a consortium that includes Huawei Technologies, according to Nokia.