Nokia Q3 2024 Results Show Weak Market Conditions

Nokia has just released its interim report for Q3 2024, and while net sales dipped 7% year-on-year (8% when reported), the company showed some promising signs of recovery in other key areas. The standout performer was Network Infrastructure, which registered growth in areas like Fixed Networks and IP Networks, contrasting with a slowdown in Mobile Networks, especially in India.

Here are some key highlights from Nokia’s Q3 2024 Report:

• Nokia’s gross margin saw a significant year-on-year improvement of 490 basis points (bps), reaching 45.7%, driven by better product and regional mixes, as well as effective cost-cutting efforts.
• Total net sales fell to EUR 4.3 billion, a decline of 8% compared to the same quarter last year. Most of this was due to decreased demand in India and divestment in Cloud and Network Services.
• Nokia’s comparable operating margin rose by 160bps year-on-year, hitting 10.5%. This was mainly thanks to strong cost controls, improved margins in Mobile Networks, and a positive boost from the reversal of certain loss allowances.
• Free cash flow was robust at EUR 0.6 billion, bringing Nokia’s net cash balance to EUR 5.5 billion by the end of Q3 2024.
• Nokia’s CEO, Pekka Lundmark, expressed optimism for the future, highlighting a strong order backlog and anticipation of significant sales growth in Network Infrastructure for Q4.

FINANCIAL RESULTS

EUR million (except for EPS in EUR)	Q3’24	Q3’23	YoY change	Constant currency YoY change	Q1-Q3’24	Q1-Q3’23	YoY change	Constant currency YoY change
Reported results
Net sales	4 326	4 709	(8)%	(7)%	13 236	15 722	(16)%	(15)%
Gross margin %	45.2%	40.2%	500bps		46.1%	39.4%	670bps
Research and development expenses	(1 116)	(1 067)	5%		(3 376)	(3 197)	6%
Selling, general and administrative expenses	(692)	(697)	(1)%		(2 101)	(2 104)	0%
Operating profit	246	237	4%		1 082	1 127	(4)%
Operating margin %	5.7%	5.0%	70bps		8.2%	7.2%	100bps
Profit from continuing operations	145	130	12%		965	700	38%
Profit/(loss) from discontinued operations	31	3	933%		(494)	11
Profit for the period	175	133	32%		471	711	(34)%
EPS for the period, diluted	0.03	0.02	50%		0.08	0.13	(38)%
Net cash and interest-bearing financial investments	5 460	2 960	84%		5 460	2 960	84%
Comparable results
Net sales	4 326	4 709	(8)%	(7)%	13 236	15 722	(16)%	(15)%
Gross margin %	45.7%	40.8%	490bps		47.0%	39.9%	710bps
Research and development expenses	(1 029)	(1 024)	0%		(3 169)	(3 119)	2%
Selling, general and administrative expenses	(591)	(594)	(1)%		(1 785)	(1 833)	(3)%
Operating profit	454	418	9%		1 477	1 507	(2)%
Operating margin %	10.5%	8.9%	160bps		11.2%	9.6%	160bps
Profit for the period	358	293	22%		1 198	1 035	16%
EPS for the period, diluted	0.06	0.05	20%		0.21	0.18	17%
ROIC(1)	10.4%	11.9%	(150)bps		10.4%	11.9%	(150)bps

¹ Comparable ROIC = Comparable operating profit after tax, last four quarters / invested capital, average of last five quarters’ ending balances. Refer to the Alternative performance measures section in Nokia Corporation Interim Report for Q3 2024 for details.

 

Business group results	Network Infrastructure		Mobile Networks		Cloud and Network Services		Nokia Technologies		Group Common and Other
EUR million	Q3’24	Q3’23	Q3’24	Q3’23	Q3’24	Q3’23	Q3’24	Q3’23	Q3’24	Q3’23
Net sales	1 525	1 534	1 747	2 157	702	742	352	258	3	22
YoY change	(1)%		(19)%		(5)%		36%		(86)%
Constant currency YoY change	1%		(17)%		(4)%		35%		(86)%
Gross margin %	42.1%	40.5%	39.8%	34.8%	40.9%	39.1%	100.0%	100.0%
Operating profit/(loss)	180	165	92	99	65	36	242	181	(126)	(62)
Operating margin %	11.8%	10.8%	5.3%	4.6%	9.3%	4.9%	68.8%	70.2%

 

Outlook for 2024

Nokia remains committed to its earlier forecast, predicting a comparable operating profit of EUR 2.3 to 2.9 billion for the full year 2024. While sales recovery is slower than expected, Nokia remains hopeful that improving gross margins and aggressive cost management will drive profitability. Free cash flow is also projected to reach the upper range of the company’s target, between 30% and 60% of the operating profit.

Business Insights:

1. Network Infrastructure: This sector stood out, with Fixed Networks growing 9% and IP Networks growing 6%, reflecting Nokia’s success in securing orders and expanding its market share.
2. Mobile Networks: Nokia continues to face headwinds in Mobile Networks, primarily due to the market dynamics in India. However, with a few important deals secured, the company remains confident in its competitive positioning and improving profitability.
3. Cloud and Network Services: This segment showed promising momentum in 5G Core and network automation, despite the overall sales dip. Nokia is pushing innovation in cloudification and private wireless networks, which offer long-term growth potential.
4. Technologies: Nokia Technologies experienced stabilization, benefiting from the conclusion of its smartphone licensing cycle while making strides into new growth areas.

Bold Investments for Future Growth

Nokia is venturing beyond its traditional service provider market. The company sees great potential in the data center industry, driven by its expansion of IP Networks products. Moreover, Nokia’s planned acquisition of Infinera is expected to enhance its Optical Networks capabilities and open new growth opportunities. The company is also exploring the defense sector with 5G technology and continues to dominate the private wireless network space.

Dividend & Buyback Program

For investors, Nokia announced a dividend of EUR 0.03 per share, set to be paid out on 31 October 2024. Additionally, Nokia’s share buyback program, aimed at repurchasing EUR 600 million worth of shares, has been accelerated to be completed by the end of 2024.

The report highlights stability in Nokia Technologies, which handles Nokia’s brand licensing, including for smartphones. After a disruptive period during the renewal of smartphone licensing deals, the division is now benefiting from more stability, and it’s expanding into new growth areas. This might hint at the potential for further developments or partnerships in the smartphone market.

While Nokia is facing market challenges, particularly in Mobile Networks, its continued investment in future technologies, disciplined cost management, and strong cash position offer reasons for optimism. As the company navigates through the final quarter of 2024, all eyes are on how well it capitalizes on the growing demand for its Network Infrastructure products and whether it can deliver on its profitability goals.

Source: Nokia