Nokia Releases Profit Warning in a Severe Economic Environment

Telecom equipment suppliers face difficult times as their customers reduce expenses to cope with a challenging economic environment. The market turmoil has forced Nokia to lower its expectations for sales and operating profit margin for 2023.
This Finnish company announced last Friday (July 14th) that it has adjusted its sales forecast for 2023 from 24.6 billion euros to 26.2 billion euros, to 23.2 billion euros to 24.6 billion euros. Nokia has also lowered its expected comparable operating profit margin for this year from the previous 11.5-14% to 11.5-13%. As operators run out of inventory, the company may still hope for a recovery in the second half of this year.

Nokia stated that part of the reason for the reduction is due to the macroeconomic environment, high inflation, and rising interest rates affecting customers’ spending plans. Therefore, client projects have started to be postponed until 2024, especially in North America. The company stated that “inventory normalization” is also one of the reasons after facing challenges in the supply chain. In recent years, equipment shortages have led to a trend of hoarding equipment. But as the situation returns to normal, companies are reducing inventory.
Faced with this challenging environment, Nokia is not the only one – Ericsson released its second quarter financial report last Friday, stating that due to a sharp decline in US sales, the group’s organic sales decreased by 9% year-on-year, while the strong performance of the Indian market only partially offset this decline.
Nokia will release its results for the second quarter and half of 2023 on July 20th. The company expects sales to remain unchanged from last year at a fixed exchange rate of 5.7 billion euros. Nokia’s net operating profit margin should be around 11%, with its authorized subsidiary Nokia Technologies increasing its operating profit by approximately 80 million euros.
The problems faced by equipment manufacturers may not be entirely surprising, as these two companies were already affected by inventory adjustments in the first quarter. At the beginning of this year, Nokia, which performed more strongly than Ericsson, seemed to have been less affected. Its online sales have increased, while its Swedish competitors have decreased by 2%.
Other device manufacturers are also affected by similar issues, with analysts warning that overall demand for telecommunications equipment is slowing down. Although Dell’Oro’s analysts predict that global telecom capital expenditure will decline in 2023, Omdia, the sisters company of Light Reading, believes that despite the decline in telecom revenue, global telecom capital expenditure will increase by 1% this year.