Nokia, the Finnish telecom equipment maker, has revised down its operating margin guidance due to ongoing challenges in its mobile networks business. This is primarily attributed to a decline in operator spending and the normalization of the Indian market after rapid 5G roll-outs. Despite these difficulties, Nokia remains optimistic about its long-term performance.
Revised Operating Margin Target
Previously, Nokia aimed for a comparable operating margin target of at least 14%. However, considering the tough market conditions, the company has adjusted its target to at least 13% by 2026. This decision reflects the prevailing circumstances and establishes more realistic goals.
Nokia has been grappling with weakening demand, largely influenced by customers facing a challenging macroeconomic environment characterized by high inflation and rising interest rates. As a result, telecom operator spending has experienced a sharp decline. To mitigate these issues and save up to 1.2 billion euros ($1.29 billion), Nokia has recently announced plans to reduce its workforce by up to 16%.
Impact of AT&T’s Decision
Last week, Nokia faced another setback when U.S. operator AT&T selected Ericsson and other vendors to build out its new network. Consequently, Nokia anticipates a decline in revenue as a direct consequence of this decision.
Despite the challenges, Nokia remains confident in its ability to achieve the previously set 14% comparable operating margin target. However, considering the current market conditions in mobile networks, the company views the revision as a prudent move to address the realities of the situation.
Looking ahead, Nokia believes that there are still opportunities to increase margins beyond 2026. The company maintains its optimism and remains committed to achieving the 14% target over the long term.
In conclusion, Nokia acknowledges the difficulties it currently faces in its mobile networks business but remains resilient and determined to overcome these challenges. With revised operating margin targets and a focus on long-term success, Nokia is poised for growth and improved performance in the future.
Nokia Expects Growth in Network Infrastructure and Cloud Services
Nokia, a leading telecommunications company, has stated that it anticipates its network infrastructure and cloud and network services business to outpace the market growth by 2026. However, challenges are expected for its mobile networks in 2024 and 2025, before they rebound and grow at a faster rate than the market in 2026.
According to Nokia’s statement released ahead of an investor event, the company foresees a decline in net sales for its mobile networks next year, along with a low-single digit operating margin. As a result, Nokia has taken steps to strengthen the unit, making it more resilient and profitable. These efforts are aimed at achieving a double-digit operating margin on net sales of approximately 10 billion euros ($10.77 billion), compared to the current sales level of EUR11.5 billion.
To accelerate its growth, the mobile networks unit will now focus on expanding its offerings in faster-growing segments. This includes targeting enterprise customers, cloud networks, open networks, and the defense sector. In line with this plan, Nokia has recently announced its acquisition of Fenix Group, a military communication provider owned by Enlightenment Capital. The financial details of the deal have not been disclosed.
Nokia’s other business groups are also making notable progress towards achieving their long-term goals, the company stated.
Looking ahead, Nokia aims to give its business groups increased strategic autonomy to pursue investments that drive growth, manage their portfolios effectively, and forge deeper strategic partnerships.