Nokia forecasts stronger second half amid Q1 profit miss

Nokia Q1 performance: Finnish telecommunications equipment manufacturer Nokia reported a smaller-than-expected rise in quarterly profit on Thursday, attributing it to sluggish demand for 5G gear in key markets such as North America and India.

CEO Pekka Lundmark addressed reporters, acknowledging the challenges faced by the company, particularly in the mobile RAN (radio access network) market. Lundmark expressed optimism, foreseeing gradual improvement throughout the year.

The first-quarter operating profit, excluding certain items of income and expenses, stood at €597 million, showing an increase from the previous year's €479 million, aided by cost-cutting measures. However, constant-currency sales witnessed a significant decline of 19 per cent.

Despite analysts' forecasts of a €663 million profit, Nokia fell short of expectations. Consequently, Nokia's shares initially experienced a downturn but later rebounded, showing a 1.5 per cent increase.

JP Morgan analysts attributed Nokia's earnings miss to weak sales trends but expressed confidence in the company's potential for recovery.

CEO Lundmark highlighted that despite persistent market challenges, there has been an improvement in orders since late last year. Notably, the Mobile Networks segment, responsible for 5G gear orders, experienced a 37 per cent decline in local-currency sales during the quarter, marking what Nokia expects to be the low point of the year, with anticipated recovery in the remainder of 2024.

Nokia had previously forecasted a demand recovery in the second half of 2024, aligning with Ericsson's recent announcement that sales would normalise in the latter part of the year.

However, challenges persist, with sales at the Network Infrastructure division falling by 26 per cent in local currencies as well as net.

Analysts remain cautiously optimistic about Nokia's outlook. Inderes analyst Atte Riikola noted that while Nokia's guidance remains steady for now, sustaining it until the year-end might be challenging.

Paolo Pescatore at PP Foresight echoed similar sentiments, acknowledging Nokia and Ericsson's confidence in the market but stressing ongoing macroeconomic uncertainty and geopolitical tensions as significant concerns.

Despite the challenges, Nokia reiterated its outlook for a comparable operating profit in 2024, ranging from €2.3 to €2.9 billion, with its comparable gross margin widening to 48.6 per cent from 37.7 per cent.

(With Reuters inputs.)