Nokia Corp. reported mixed financial results for the third quarter of 2024, reflecting both challenges in its core telecom market and emerging signs of recovery in North America and India, according to the company's latest earnings report. The Finnish telecom equipment maker recorded a 9% increase in operating profit due to aggressive cost-cutting measures, even as its quarterly net sales declined by 8% year-over-year, falling short of analyst estimates.
The drop in revenue, which reached 4.33 billion euros ($4.7 billion), was attributed primarily to a decrease in sales in the Indian market. Analysts had anticipated net sales closer to 4.76 billion euros. Following the earnings release, Nokia's stock fell by 3% as the company's struggles in key markets, including the United States and India, became apparent.
CEO Pekka Lundmark expressed cautious optimism about the results, noting that while North America has shown signs of growth, the recovery is slower than previously expected. "We have seen a really bad cycle... Now that decline is over, and it is starting to gradually recover, which is good, but it will never be a huge growth market," Lundmark said in an interview with Reuters.
Nokia's market share in North America has been under pressure after losing significant contracts with major carriers such as Verizon and AT&T in recent years. Despite these setbacks, Lundmark highlighted the company's growth in network infrastructure during the third quarter, pointing to this as a positive indicator for the business's future trajectory.
To diversify its revenue streams, Nokia has been expanding into the data center and defense sectors. In June, the company acquired U.S. optical networking firm Infinera for $2.3 billion, a strategic move aimed at targeting data center operators. "That's where the growth will come from, and that growth is starting already," Lundmark said, emphasizing the importance of broadening the company's focus beyond traditional telecom.
The outlook for Nokia's business in India, which has faced significant challenges this year, is also showing signs of improvement. Nokia recently secured a major contract with Vodafone Idea and is expected to finalize another deal with Bharti Airtel, according to Lundmark. "India will return to growth next year," he added, expressing confidence in the region's potential to contribute positively to Nokia's bottom line.
Despite the revenue decline, Nokia's operating profit exceeded expectations, rising to 454 million euros, above the 424 million euros predicted by analysts polled by LSEG. The company maintained its full-year profit outlook of 2.3 billion to 2.9 billion euros but cautioned that it was tracking within the lower half of this range, reflecting ongoing market uncertainties.
Network infrastructure sales showed modest growth of 1% year-over-year, while cloud and network services sales declined by 4%, primarily due to the divestment of Nokia's device and service management platform businesses. Mobile network sales also dropped by 17% due to weaker demand in India, highlighting the company's reliance on performance in emerging markets.
Gross margins improved significantly, climbing by 500 basis points to 45.2%, largely driven by improvements in the mobile network segment. Operating margins also rose, with a comparable margin reaching 10.5%, up from the previous quarter, as the company continued to implement stringent cost control measures.
Nokia's focus on patent licensing agreements also provided a boost, with its technology division reporting a 35% year-over-year increase, driven by new agreements with smartphone manufacturers Oppo and Vivo. The company's efforts to stabilize this segment appear to be paying off, contributing to its overall performance.
Looking ahead, Nokia reiterated its forecast for the full year but adjusted its growth expectations for specific segments. For 2024, the company anticipates a decline of 6% to 3% in network infrastructure sales and a more significant drop of 22% to 19% in mobile network sales, reflecting the ongoing adjustments in its core telecom business. However, Lundmark remains hopeful that the company will see accelerated growth in network infrastructure by the fourth quarter, citing newly secured deals and progress in 5G core technology.
In terms of cash flow, Nokia reported holding 5.5 billion euros in net cash and generated 0.6 billion euros in free cash flow for the quarter. The board also announced a dividend of 0.03 euros per share, underscoring the company's commitment to returning value to shareholders despite ongoing challenges.
As the company navigates the evolving telecom landscape, Lundmark reiterated that the focus on data centers, defense, and strategic growth areas beyond traditional telecom will be essential. "Telecom will never be a huge growth market for us, but diversifying into adjacent sectors is where we see future opportunities," he said, indicating a shift in strategy as the company adapts to market changes.
Despite its challenges, Nokia has seen its stock rise by 28% over the past 12 months, reflecting investor confidence in the company's long-term strategy. However, as the company continues to transition and seek new revenue streams, it will be crucial for Nokia to deliver on its growth projections and maintain its competitive edge in a rapidly shifting industry.
