(Bloomberg) — Nokia Oyj reported weaker-than-expected earnings, amid a slowdown in demand for its 5G gear in some of the company’s more mature markets.
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Adjusted operating profit was €479 million ($525 million) for the first quarter, the Espoo, Finland-based mobile network company said in a statement on Thursday. That compares to an average analyst estimate of €544 million, according to a Bloomberg survey. Adjusted earnings per share came to 6 cents, less than the 7 cents estimated by analysts.
The shares fell as much as 4.2% at 10:48 a.m. in Helsinki, extending losses from a year ago to 15%.
“Nokia is starting to see some signs of the economic environment impacting customer spending,” Chief Executive Officer Pekka Lundmark said in the statement. “Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty.”
The growing economic headwinds seen in the fourth quarter continued to pressure 5G equipment vendors, with sales shifting toward lower-margin markets like India and spending at US carriers declining. The ramp up in India deployments during the quarter more than offset a slowdown in North America spending, Nokia said.
“Now that the semiconductor and the overall supply chain works much better, there are two things happening: there is to some degree a slower build-out pace and, in addition to that, there is inventory digestion,” Lundmark said in an interview. “So that is causing the weakness. We believe that we will see fairly similar trends in the second quarter, as we saw in the first quarter.”
Earlier in the week, competitor Ericsson AB reported better than estimated earnings but warned of a “choppy” 2023 that would see margins under pressure. Nokia said it expects that profitability in the second half of the year will be stronger than the first half.
The Finnish company kept its guidance of an operating margin of 11.5% to 14% this year, compared with 12.5% in 2022, on a comparable basis. The sales outlook is unchanged, adjusted for exchange-rate fluctuations, with an increase to as much as €26.2 billion projected for this year. Analysts in a Bloomberg survey forecast average net sales of €25.6 billion.
“What gives us confidence is that just as one data point, only about 50% of the US 5G sites have been upgraded to mid band so far,” Lundmark said. “So there is still a long way to go.”
Nokia also said it’s agreed to divest part of its Radio Frequency Systems business and VitalQIP business as part of a plan to actively manage its portfolio and “to secure a leading position in all segments where we decide to compete.” It also recently agreed to sell its stake in the TD Tech joint venture.
The deals are “concrete proof” that active portfolio management “is not only talk, we are making moves,” Lundmark said.
In the first quarter, Nokia won back its investment-grade credit rating that it had forfeited a more than a decade earlier, as it ran up losses at its handset business, which it has since divested. It immediately made use of the higher rating by raising €500 million from the sale of its debut sustainability-linked bond.
(Updates with shares, CEO comment from third paragraph)
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