Network devices The outlook for Nokia is brighter than it has been for a long time.
The company has repeatedly exceeded investor expectations this year, and on Thursday it also changed its own assessment of the development of profitability to significantly better.
It seems that the years are behind us, when the company was not able to deliver on its promises, but time and time again had to give the most intricate explanations for the stubbornness of its business.
Nokia estimated on Thursday that its operating margin, which measures its profitability, will be 10-12 this year. This is a significant improvement, as at the end of April the operating profit margin was still estimated at 7-10%.
The company estimates that its turnover this year will be EUR 21.7–22.7 billion. The previous estimate was EUR 20.6-21.8 billion.
The main reason for the brightening of the near-term outlook is the well-functioning early part of the year.
Nokia In April – June, net sales were EUR 5.3 billion and the company’s reported operating profit excluding non-recurring items was EUR 682 million. However, it includes a non-recurring capital gain of EUR 80 million from the software transaction.
Even if the capital gain was not taken into account, the operating profit was significantly better than market expectations.
“First, the market was strong. In the first quarter, net sales in local currencies increased by nine percent and the same strong growth was repeated in the second quarter. In addition to being strong markets, our growth has been driven by the strengthening of our competitiveness. The strengthening of our competitiveness is again due to the improvement of our technology, ”says the CEO Pekka Lundmark.
Net cash and short-term investments totaled EUR 3.7 billion at the end of June, which is also higher than analysts’ forecasts. A year ago, they were 1.6 billion euros.
During the current year, investors’ confidence in the company has also begun to recover. Nokia’s share price has risen by almost 70 percent on the Helsinki Stock Exchange. On Thursday afternoon, it strengthened by almost seven percent to 5.27 euros.
Year then CEO started Lundmark has made major changes to the company. In particular, his chairman has been the chairman of the board Sari Baldauf. Baldauf once successfully managed Nokia’s online business.
“This has been an amazing year. When I started in this role, I was the first to embrace these challenges in products and technology. Overall, given that we have worked remotely for most of the year and have not been able to meet face to face with only a small number of my colleagues, I am very pleased overall. ”
During Lundmark’s CEO term, Nokia’s operating model and organization have been simplified. Profitability has been assigned to each of the four business groups, and investments in product development have been increased by hundreds of millions of euros.
In the past, decisions were dictated more from the top down, which frustrated many and hampered vital product development.
“It is very rewarding to see how the enthusiasm and faith of our troops in Nokia’s turn is to be touched. Of course, such major changes are not just due to the CEO. ”
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Thursday In the published interim report, it is also encouraging that operating profit increased in each of the four business groups, ie mobile networks, network infrastructure, cloud and network services and technology unit.
“The increase in net sales and the improvement in profitability are combined with the fact that our business groups have really started to take responsibility for their earnings development and costs. The point is that our market position and technology have improved, and cost management has been good, ”says Lundmark.
A year ago, Nokia lagged behind its competitors in fifth generation (5g) mobile phone technology.
Before Midsummer, Nokia said it had completed the new 5g base station products it had been developing for two years. In them, the company finally utilizes system circuits with lower costs and better technical characteristics.
“The new 5g products did not affect the second quarter results yet, but it can be said that they have been very well received by Asian pilot customers. It, on the other hand, has a really big impact on our credibility as a technology pioneer. These new products will help us fight for market share. ”
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Towards the end of the year surprises as large as the first six months may not be expected during the period.
Already in October, the company estimates that its market share in the United States will shrink and that price competition will be fierce. These will affect Nokia’s business later this year.
“In the second half of the year, our product development costs will increase further, in addition to which we have a shortage of semiconductor components. If there were no shortage, we would be able to grow our turnover even faster than at present. Visibility in the component market is exceptionally poor, as semiconductor companies are unable to make binding promises. ”
Nokia’s main partners in semiconductors are US-based Qualcomm, Marvell, Intel, Texas Instruments and Broadcom.
“In fact, lately, we’ve been doing pretty well in the U.S. because we signed five-year 5g contracts with both AT&T and T-Mobile. In addition, we have done very well in the United States with smaller operators and fixed network operators. ”
All as a purse Nokia has managed to revive its business in China or at least benefit from the plight of its rival Ericsson.
China Mobile, the world’s largest telecom operator, said in mid-July that Nokia had won a larger share of new 5g orders than its Swedish rival Ericsson in the tender. Nokia accounts for four percent and Ericsson for two percent.
According to Ericsson, Chinese telecom operators have reduced purchases from it because the Swedish authority banned telecom operators from using Chinese Huawei hardware and software in key areas of their networks.
“We don’t tell you the value of the deal, but documents released by China Mobile show that the deal includes 19,200 base stations. The deal is still tentative as it has to take place in different provinces. This is an important step, although four per cent is, of course, a small proportion. However, it is much more than in the previous round of bidding, when our stake was zero. This also shows that our technological competitiveness has taken a big step forward. ”
Based on the number of base stations, the value of the transaction is roughly a couple of hundred million euros.
Next, two other Chinese telecom operators, China Unicom and China Telecom, will decide from which manufacturers they will buy 5g hardware and software. Ericsson anticipates that its share of orders from these telecom operators will also decrease.
Large Due to 5g investment and operational simplification, Nokia estimates in March that it will phase out 5,000 to 10,000 jobs worldwide over the next two years.
A significant improvement in business can lead to at least 10,000 job cuts. In Finland, a maximum of 265 jobs will be cut.
However, within three years, Nokia has also hired 1,200 employees in Finland for product development of 5g mobile phone technology in Oulu, Espoo and Tampere.
“We don’t have a new estimate of job cuts. However, we have said before that it is affected by market developments and the growth of our business. While the growth of our business has been very good this year, we naturally need a lot of hands to deliver new orders. The better we do in the market, the more likely we are to get closer to the lower the figure. ”
Nearly all indications are that this year will mean a big change for the better for Nokia.
However, improving the near-term outlook may also be a bit of a tactic. When a new CEO is hired for a company in difficulty, expectations of earnings development can, of course, be made so weak that exceeding them is almost inevitable.
Be that as it may, Nokia’s business has stabilized and the company has apparently succeeded in developing better 5g products. Time will tell if it has already wedged alongside or even past its competitors.
Despite the fact that the company estimates that its profitability will develop much better this year, it will maintain its 2023 profitability estimate.
The compelling reason for this is that Nokia only announced its long-term profitability assessment four months ago.
It might seem strange that the estimate, which extends over two years, will be changed in a very short time.
“We don’t have a specific time limit for when we might re-evaluate the development of profitability in 2023. The changes have progressed much faster than we dared to estimate, but there is still a lot of work to be done. “
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