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Nokia's Second Quarter Sales Plunge to Lowest Since 2015 Amid 5G Market Challenges
Nokia Oyj reported its lowest quarterly sales since 2015, as weak investment in mobile network upgrades continues to hamper the 5G equipment market. The Finnish company disclosed a significant 18% year-over-year decline in net sales for the second quarter, reaching €4.47 billion ($4.9 billion), falling short of the €4.76 billion average forecast by analysts.
Revenue Figures and Market Reaction
Excluding its undersea cable business, which it is in the process of selling, Nokia's revenue fell below expectations. This resulted in a 9% drop in Nokia shares, trading at €3.26 in Helsinki, though the stock has seen a 6.7% rise this year.
Challenges in the Telecom Equipment Market
Nokia and its Nordic competitor, Ericsson AB, have been struggling in a challenging telecom equipment market, with a bleak outlook for significant investments in 5G infrastructure from mobile operators. Both companies have cut thousands of jobs and streamlined operations to manage costs better. Despite these measures, the market remains sluggish, pushing Nokia to adapt its strategy significantly.
Strategic Shifts and Investment in AI
In response to the weak market conditions, Nokia has undertaken major changes within its network infrastructure division. Recently, it completed a $2.3 billion acquisition of Infinera to harness artificial intelligence-driven demand for data center services. Additionally, Nokia is planning to sell its undersea cable business, Alcatel Submarine Networks, to the French government.
Order Backlog and Profitability Defense
Nokia CEO Pekka Lundmark highlighted an increasing order backlog as a positive factor amidst the weak sales environment. Despite the decline in net sales, Nokia achieved an adjusted operating profit of €423 million for the quarter, surpassing analyst expectations of €372 million. Lundmark emphasized the company's efforts in cost management, which helped sustain profitability.
Impact of One-Time Items
Both net sales and operating profit benefitted from a one-time €150 million boost resulting from the settlement of an outstanding contract with AT&T Inc. However, analysts cautioned that this one-time item inflated the operating results. Excluding this, the performance of Nokia's networks businesses was softer than anticipated.
North American Market Prospects
There are early signs of recovery in the North American market, according to Lundmark, aligning with similar comments from Ericsson CEO Börje Ekholm. Despite losing a $14 billion network deal with AT&T to Ericsson last year, there appears to be cautious optimism about the market's future dynamics.
This report offers a comprehensive look at Nokia's recent performance and strategic adjustments, painting a picture of a company navigating through a tough telecom landscape while making efforts to secure profitability and future growth.
