Finnish telecom giant Nokia (NOKIA.HE) has reported a significant 32% drop in its second-quarter operating profit, attributing the decline to weak demand for 5G telecom equipment. However, the company remains optimistic about a recovery in sales towards the end of 2024, bolstered by orders from North America.
The operating profit, which excludes certain charges and asset revaluations for comparability, fell to 423 million euros ($462.38 million) from 619 million euros in the same period last year. Nokia, along with its rival Ericsson (ERICb.ST), has been impacted by a reduction in telecom equipment purchases, leading to the announcement of thousands of lay-offs in response to the downturn.
Net sales saw an 18% year-on-year decline, partly due to a slowdown in 5G technology investment in India, a key market that had experienced rapid growth the previous year. Analysts at Jefferies noted that both sales and earnings fell short of forecasts once one-off items were excluded, with Nokia’s shares dropping 8% by 0718 GMT.
Nokia’s CEO, Pekka Lundmark, acknowledged that sales recovery was slower than anticipated but predicted a significant acceleration in net sales in the second half of the year. This outlook aligns with similar forecasts made by Ericsson last week. Lundmark highlighted an improving fibre market in the U.S. and a $42 billion government program aimed at enhancing high-speed broadband access for citizens as key drivers for future growth.
“That’s creating some interesting additional dynamics right now for us because we are clearly the first mover there with a product portfolio that is compatible with the ‘Buy America’ requirements,” Lundmark told Reuters, adding that the real benefits would materialize next year.
In Europe, both Nokia and Ericsson could gain market share following Germany’s decision to exclude Chinese vendors like Huawei and ZTE (000063.SZ) from the nation’s 5G network products from 2029. Lundmark stated that Nokia is still assessing the impact of this decision.
Despite the current challenges, Nokia has maintained its full-year guidance for comparable operating profit. However, analysts at Inderes cautioned that this outlook would remain under pressure until the end of the year.