Nokia recently revealed its Q2 financials, with sales coming in at flat €5.7 billion when compared to the previous year. The figures indicate a reduced capital expenditure (capex) by operators. Furthermore, there was a contraction in gross margin to 38.2% from 40.2%, and an even more significant dip in its operating margin which fell from 9.6% to 8.3%. The operating profit also declined by 16% to €474 million.
A closer look indicates that despite a 5% growth in sales reported by Nokia’s Mobile Networks unit, a 6% decline at the Network Infrastructure division undermined this slight increase. The latter division is responsible for Nokia’s services in optical, IP, fixed-line, and submarine networking.
Breaking down the revenue further, what emerges is the stark contrast between regions. For instance, the North American sales plummeted by a significant 42% YoY as operators eased off on their 5G capex. Conversely, in India, operators are moving forward with fervent 5G deployment, but this hasn’t been enough to compensate for the steep decline in the US and elsewhere.
Nokia had already reduced its sales predictions for the rest of 2023 last week because of lower demand, related to inflation, and rising inventory levels among customers. The rather bleak adjustments have had a knock-on effect, engulfing Ericsson as well, which reported a 9% YoY downturn in Q2 revenue on the same day.
“In the second half, we expect these trends to continue impacting our business, meaning we now see the second half’s net sales to be broadly the same as the first half in both Network Infrastructure and Mobile Networks, with a minor sequential improvement visible into Q4,” stated Nokia’s CEO Pekka Lundmark.
Analyst firm Dell’Oro’s forecast for the shrinking global Radio Access Network (RAN) by 1% over the next five years aligns with Nokia’s prospects as it anticipates the growth in 5G expenditure will not match up to the steep fall in LTE investments. While speculating the start of a more significant capex cycle to take off when 6G arrives, Dell’Oro reevaluated its five-year growth estimate for the mobile core networking market to 1% from 2%, due to slowing subscriber growth.
Regardless of the projected fluctuating years ahead, Nokia maintains its stance on a solid financial footing. Their CEO reassures, stating that their strong balance sheet, including a €3.7 billion net cash position, provides a sturdy foundation to weather the period of uncertainty that lies ahead. This precaution could suggest a preparatory move for digital industry heads to brace for potentially turbulent years to come.
