As expected, Nokia’s second quarter 2023 net sales were down 3% (flat year over year on a constant currency basis). Last week, the company had pre-reported these sales results and lowered its full year guidance.
Nokia expects full year 2023 net sales in the range of €23.2 billion - €24.6 billion ($26.07 billion - $27.65 billion) with an operating margin in the range of 11.5% to 13.0%
Today, Nokia CEO Pekka Lundmark said there was a 40% decline in net sales year-over-year in North America during the quarter.
“The 40% decline in North America was the result of declines across all business groups as inventory digestion continued and CSPs [communications service providers] reevaluated their spending plans,” said Lundmark. “It was the trends we expected to see with rapid India ramp-up being offset by slowdown in North America.”
But he sounded optimistic about the future of 5G deployments.
“If we look at how 5G has been deployed on mid-band sites across the world, excluding China, we still see plenty of potential,” said Lundmark.
According to Nokia’s data, only about 25% of sites now have 5G mid-band deployed on them. While penetration rates vary by region, even in markets like North America where significant 5G mid-band deployments have already been made, the region is only 55% complete. Other regions like Europe, the Middle East and Africa are still in the very early stages of deploying 5G. “So there are still significant investments needed around the world,” said Lundmark.
In addition to weakness in its North American mobile business, Nokia also saw declines in its network infrastructure business in the region, although that was slightly less than in mobile.
“Overall the demand for fiber outlook is healthy across the world for fiber, said Lundmark. He noted that Nokia is a market leader in optical line terminals (OLTs) and optical network terminals (ONTs) for fiber networks. And the company is looking forward to all the money that governments in the U.S. and Europe are beginning to spend to close their digital divides.
Given Nokia’s lackluster quarter, the company has instituted cost-saving measures related to hiring and travel expenses and will also see a reduction in variable compensation awards.
India
Despite all the bad news, Nokia saw 355% growth year over year from its customers in India.
Lundmark said, “It has been an incredible growth period in India. The overall result will be that 2023 will be an exceptional year in India for sure.” But he cautioned that investors can’t expect 355% growth to continue forever.
For him one of the best parts of Nokia’s success in India is that it has taken market share. “We broke into, big time, into Reliance Jio, which was 100% Samsung previously. We believe the new normal, the new run rate we will see for our business, will be clearly higher than what was the case before.”