Nokia's Q1 2023 Results: A Challenging Transition to 5G Era

Highlights

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• Nokia's net sales increased by 10% YoY in reported currency and 9% YoY in constant currency, driven by 65% growth in enterprise net sales.
• Comparable gross margin declined by 310bps to 37.5% in reported currency and by 300bps to 37.7% in constant currency, mainly due to regional mix and lower contribution from Nokia Technologies.
• Comparable operating margin decreased by 270bps YoY to 8.2%, impacted by gross margin, venture fund contribution, and disciplined cost control. Reported operating margin improved by 70bps YoY to 7.3%.
• Comparable diluted EPS was EUR 0.06, while reported diluted EPS was EUR 0.05. Free cash flow was negative EUR 0.1bn, and net cash balance was EUR 4.3bn.
• Nokia's 2023 outlook remains unchanged in constant currency, with a full-year net sales outlook of EUR 24.6bn to 26.2bn applying the exchange rates as of 31 March 2023. The comparable operating margin guidance is 11.5% to 14.0%

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Nokia, the Finnish telecom equipment maker, reported its first quarter results on Thursday, April 20, 2023. In Q1 2023, Nokia's reported net profit amounted to EUR 289 million, up from EUR 219 million in Q1 2022. However, comparable net profit decreased from EUR 416 million in Q1 2022 to EUR 342 million in Q1 2023.

In Q1 2023, the net cash balance decreased by EUR 463 million, leaving an end-of-quarter net cash balance of EUR 4.3 billion. The total cash balance also decreased by EUR 630 million from the previous quarter, to EUR 8.6 billion.

Nokia's CEO Pekka Lundmark said that -

Looking forward, we are starting to see some signs of the economic environment impacting customer spending. Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty. We remain on track to deliver another year of growth in 2023 so our outlook is unchanged with the expectation that profitability in the second half of the year will be stronger than the first half.

Some of the actions that Nokia is taking include:

• Investing more in research and development to accelerate its 5G innovation and leadership.
• Active portfolio management as a key strategy to ensure the leadership position in targeted segments.
• Agreements to divest a portion of Radio Frequency Systems and VitalQIP businesses.
• Expanding its presence in emerging markets such as China, India, and Africa.
• Selling of stake in joint venture TD Tech, subject to the completion of closing conditions.

Nokia also reaffirmed its full-year guidance for 2023, expecting a comparable operating margin of 11.5-14% and a free cash flow of positive. The company said that it expects to see a gradual improvement in its performance throughout the year, as it benefits from its 5G investments, cost savings, and market opportunities.

Nokia's CEO Lundmark stated that Nokia is currently involved in legal disputes with Oppo and Vivo, two Chinese smartphone manufacturers. Additionally, Lundmark noted a decline in Nokia's North American business

Lundmark expressed that India experienced significant growth, stating that India's contribution to their sales in Q1 was 15%, as compared to only 5% last year. Nokia's stock price fell by more than 8% after the earnings release, wiping out its gains since the start of the year. 

Nokia is one of the oldest and most iconic brands in the telecom industry, with a history of over 150 years. The company has survived many ups and downs in its journey, from being a paper mill to a rubber manufacturer to a mobile phone giant. Now, Nokia is facing another critical moment in its evolution, as it tries to reinvent itself for the 5G era. Will Nokia be able to overcome its challenges and regain its glory? Only time will tell.