Nokia Reports 18% Decline in Q2 Sales Amid Weak 5G Market

Nokia reported an 18% decline in second-quarter sales, falling to €4.47 billion, the lowest since 2015. The weak 5G market and insufficient investment in mobile network enhancements resulted in disappointing results.

Nokia Q2 Sales Plummet to Lowest Since 2015, Miss Analyst Expectations Amid Weak 5G Market

Nokia Oyj's sales in the second quarter were the lowest since 2015 and fell short of analyst expectations. Adequate investment in mobile network enhancements is needed to improve the 5 G equipment market.

In a statement issued on July 18, the Espoo, Finland-based company reported that net sales for the quarter decreased by 18% to €4.47 billion ($4.9 billion) compared to the previous year. The revenue figure does not include the undersea cable business currently being sold. According to Bloomberg's analysts' survey, the average forecast is €4.76 billion.

Nokia shares declined 9% to €3.26. The stock has increased 6.7% thus far this year.

For years, Nokia and its Nordic competitor Ericsson AB have encountered a bleak telecommunications equipment market, with few indications that mobile operators will make significant investments in 5G equipment shortly. In the past year, both organizations have reduced their workforce by thousands and optimized their operations to reduce expenses.

Due to the feeble telecommunications equipment market, Nokia has been compelled to modify its network infrastructure division substantially. For instance, last month's acquisition of Infinera was a $2.3 billion investment in the demand for data center services driven by artificial intelligence. Additionally, the French government intends to acquire Alcatel Submarine Networks, which is its undersea cable operation.

“The order backlog is growing and that’s obviously a factor that we are seeing” contributing to an improving dynamic, Nokia Chief Executive Officer Pekka Lundmark said in an interview. “No question volumes are extremely weak at the moment when you look at the top line.”

Nokia Maintains Profit Forecast Despite Revenue Dip to Lowest Since 2015 Amid Weak 5G Demand

According to Bloomberg's data, Nokia's revenue was at its lowest level since the fourth quarter of 2015, when it acquired Alcatel-Lucent for €10.6 billion.

"Nokia is maintaining its comparable operating profit objective of €2.3-€2.9 billion for the entire year, even though its top-line recovery is taking longer than anticipated to materialize due to mobile carriers' muted 5G spending as a result of its cost-cutting progress (consensus €2.5 billion). Given the 19% decline in the year's first half, analysts' projections of a 5% decline in 2024 organic sales may be overly optimistic," Tamlin Bason, Bloomberg Intelligence Technology Analyst, stated.

In the quarter, adjusted operating profit exceeded the average analyst estimate of €372 million, totaling €423 million. Nokia has reaffirmed its 2024 profit forecast.

“We have taken so much action on cost and as you can see when you look at the profitability side of it that, despite the top line weakness, we have actually been able to defend the profitability pretty well,” Lundmark said.

Nokia reported that the settlement of an outstanding contract with US operator AT&T Inc. resulted in a €150 million increase in net sales and operating profit, according to Fortune.

“Nokia reported a better-than-expected comparable operating result, but it was achieved with a large one-time item for Mobile Networks as a result of the termination of the AT&T contract,” Inderes analyst Atte Riikola said in a note. “Excluding this, the operational development of networks businesses was softer than expected.”

On a conference call with reporters, Lundmark reiterated the sentiments expressed by Ericsson CEO Börje Ekholm last week, stating that the North American market is exhibiting preliminary indications of recovery. Late last year, Ericsson secured a $14 billion network agreement with AT&T, surpassing Nokia.