Nokia's Q1 profit falls 18% amid slowdown in consumer spending

Finnish company maintains full-year outlook and expects a turnaround in the second half of the year

Nokia expects net sales of €24.6 billion to €26.2 billion this year, indicating 2 per cent to 8 per cent growth in constant currency. Reuters

Nokia, one of the world's largest manufacturers of telecoms equipment and electronics, reported an 18 per cent annual drop in its first-quarter profit, amid slower consumer spending in a challenging economic environment.

Comparable net profit for the three months ended March fell to €342 million ($374.7 million), from €416 million a year ago, the Finnish technology major said in its interim report released on Thursday.

Operating profit similarly declined 18 per cent to €479 million year on year, which missed the €532.4 million projection from analysts polled by market data intelligence firm Refinitiv.

Revenue for the three-month period rose 9 per cent annually to about €5.86 billion on a constant currency basis.

“Looking forward, we are starting to see some signs of the economic environment impacting customer spending,” said Pekka Lundmark, president and chief executive of Nokia.

The company's operating margin dropped to 8.2 per cent from 10.9 per cent a year earlier, “primarily due to expected greater seasonality in mobile networks’ profitability, a lower contribution from Nokia Technologies in the quarter and a negative impact from venture fund investments”, he said.

Nokia had forecast margins of between 11.5 per cent and 14 per cent in 2023.

“Given the ongoing need to invest in 5G and fibre, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty,” Mr Lundmark said.

“We remain on track to deliver another year of growth in 2023 so our outlook is unchanged with the expectation that profitability in the second half of the year will be stronger than the first half.”

The company expects net sales of €24.6 billion to €26.2 billion this year, indicating 2 per cent to 8 per cent growth in constant currency.

Shares of Nokia were down about 3 per cent on the Nasdaq Nordic exchange in Helsinki in midday trading. Its stock price has been flat year-to-date in 2023, and down nearly 12 per cent over the past 12 months.

Nokia is one of the key players in the telecoms industry, which has become increasingly competitive with the advent of 5G technologies.

Among its biggest competitors are China's Huawei Technologies and Sweden's Ericsson.

It was also at one point the biggest manufacturer of mobile phones, but saw its dominance decline after the arrival of the Apple iPhone and Google Android devices on the market. Nokia smartphones are now being developed by fellow Finnish company HMD Global.

Nokia has particularly found strength in its India operations, where revenue grew fourfold in the first quarter of 2023 from a year ago. Revenue in the Middle East and Africa, and Europe grew 7 per cent and 5 per cent, respectively.

This offset the weakness in the company’s North American and Greater China operations, where revenue declined 12 per cent year-on-year.

Nokia's network infrastructure division was its best-performing in the first quarter, with operating profit surging to €344 million, from €195 million a year ago.

Revenue for the unit rose nearly 14 per cent to about €2.25 billion, supported by the “particular strength” in the company's optical networks and “good growth” in its IP networks and submarine networks divisions.

Operating profit for mobile networks climbed by almost a quarter year-on-year to €171 million, while revenue rose more than 13 per cent to €2.57 billion.

Its cloud and network services unit, however, posted a €20 million loss compared to €20 million profit in the first quarter of 2022, despite a 3.2 per cent rise in revenue, due to a “shift from software sales towards lower margin hardware sales in the quarter”, the company said.

Nokia's board also approved the distribution of a dividend of €0.03 per share, which will be paid on May 4.

In February, the board also initiated a share buyback programme to repurchase shares to return up to €600 million of cash to shareholders in tranches over a period of two years.

The second €300 million phase of the programme started in January and will end, at the latest, on December 21.