Due to the ongoing market weakness, Nokia reported a 19% year-on-year constant currency decline in net sales in the first quarter of 2024. Within a challenging environment, order trends continue to improve year-on-year, particularly in the Network Infrastructure business unit.
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The continued improvement in order intake has kept Nokia “confident in a stronger second half and achieving [their] full year outlook,” President and CEO, Pekka Lundmark, commented.
Driven by the patent licensing deals signed by Nokia Technologies, the Swedish vendor achieved a comparable operating margin of 12.8% in Q1, compared to 8.2% the year before. The company also generated almost EUR 1 billion in free cash flow in the quarter, depicting a “very strong performance.”
Nokia disclosed that its Mobile Networks business unit was impacted by particularly low levels of spending in North America and India, which led to a Q1 net sales decline of 37% in constant currency.
“Globally, we expect Q1 to mark the low point in demand with activity, then progressively pick up through the remainder of 2024, consistent with more normal seasonality,” added Lundmark.
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Nevertheless, Nokia experienced a notable increase in its gross margin, reaching 42% during the quarter. This marks a robust improvement from the 34% recorded in Q1 2023. Approximately half of this improvement is due to the improving regional and product mix, while the remainder was due to low indirect cost of sales.
In the Cloud and Network Services segment, Lundmark highlighted making good progress with the company’s Network as Code platform, which enables operators to monetize their 5G investments, creating new revenue streams by offering developers advanced API access to the network. “We now have a total of 11 operators signed up to the platform, with many more in active discussions.”
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On a positive note, Nokia Technologies had a “very strong start” to the year as the company concluded a number of outstanding licensing deals in the quarter. The annual licensing net sales run-rate improved from EUR 0.9-1.0 billion in Q4 2023 to approximately EUR 1.3 billion in Q1 2024.
Nokia also concluded its smartphone licensing renewal cycle with no major renewals due for a number of years, which means Nokia Technologies has entered a “period of stability.” Lundmark pointed out that the business will now focus its resources on expanding into new growth areas.
Outlook
Nokia anticipates comparable operating profit for FY2024 to fall within the range of EUR 2.3 billion to EUR 2.9 billion, with free cash flow conversion ranging from 30% to 60%.
Nokia’s assumptions suggest an operating margin growth of 1-4% in Mobile Networks, 6-9% in Cloud and Network Services, and 11.5-14.5% in Network Infrastructure.
“The outlook for Fixed Networks for 2024 has improved, which is an important signal as this market often recovers first. However, we believe the recovery in Optical Networks may take somewhat longer. While we are conscious of the broader economic environment (considering the on-going order intake strength), we expect Network Infrastructure will return to net sales growth for full year 2024 with a stronger second half performance,” stated Lundmark.
Nokia envisions additional opportunities to bolster margins beyond 2026 and maintains the belief that achieving an operating margin of 14% over the longer term is feasible.
