Nokia Corporation's Q3 2023 Interim Report: Insights and Highlights

This is a summary of the Nokia Corporation Q3 and January-September 2023 Interim Report published today. The summary is only of its financial reports in stock exchange releases. The summary focuses on Nokia Group's financial information as well as Nokia's outlook. The detailed, segment-level discussion will be available in the complete financial report hosted at www.nokia.com/financials. A video interview summarizing the key points of our Q3 results will also be published on the website. Investors should not solely rely on summaries of Nokia's financial reports and should also review the complete reports with tables.

Pekka Lundmark, president and CEO, Nokia, on Q3 2023 results:

Our third-quarter performance demonstrated resilience in our operating margin despite the impact of the weaker environment on our net sales. In the last three years, we have invested heavily to strengthen our technology leadership across the business, giving us a firm foundation to weather this period of market weakness.

We continue to believe in the mid- to long-term attractiveness of our markets. Cloud Computing and AI revolutions will not materialize without significant investments in networks that have vastly improved capabilities. However, given the uncertain timing of the market recovery, we are now taking decisive action on three levels: strategic, operational and cost. I believe these actions will make us stronger and deliver significant value for our shareholders.

First, we are accelerating our strategy execution by giving business groups more operational autonomy. Second, we are streamlining our operating model by embedding sales teams into the business groups, and third, we are resetting our cost base to protect profitability. We target between EUR 800 million and EUR 1,200 million in cost savings by 2026. These actions keep us on track to deliver our long-term target comparable operating margin of at least 14% by 2026.

In the third quarter, we saw an increased impact on our business from the macroeconomic challenges that are pressuring operator spending, resulting in a 15% net sales decline in constant currency compared to the prior year. Network Infrastructure declined 14% due to weaker spending impacting IP Networks, while Fixed Networks was impacted by the same challenge combined with customer inventory digestion. In Mobile Networks, net sales declined 19% as we saw some moderation in the pace of 5G deployment in India, which meant the growth there was no longer enough to offset the slowdown in North America. Cloud and Network Services proved more robust in the quarter with a 2% decline and continued to benefit from strong growth in the Enterprise Solutions business.

Considering the net sales decline, our comparable operating margin of 8.5% proved resilient due to our continued cost discipline and some additional other operating income in the quarter. Positively, we saw a sequential improvement in our Mobile Networks gross margin as the regional mix is starting to become more favorable, along with continued improvements in product cost.

In Nokia Technologies, we remain confident the business group will return to a net sales annual run-rate of EUR 1.4-1.5 billion as we work through the smartphone license renewal cycle and continue to grow in new areas.

We had a number of important product launches in the quarter as we continued to invest in technology leadership. In IP Networks, we announced our new FPcx routing silicon, which helps us extend the high-performance capabilities of our IP Networking silicon further across the network to provide a broader range of applications to customers. In Cloud and Network Services, we launched our organically developed Network as Code platform enabling developers and service providers to accelerate the use and monetization of 5G and 4G assets through network APIs. We have significant interest from operators globally, and we have already signed four agreements.

Looking forward, while our third-quarter net sales were impacted by the ongoing uncertainty, we expect to see a more normal seasonal improvement in our network businesses in the fourth quarter. Based on this and assuming we resolve the outstanding renewals impacting Nokia Technologies, we are tracking towards the lower end of our net sales range for 2023 and towards the mid-point of our comparable operating margin range.

Financial Results

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