Nokia joins Ericsson in forecasting stronger second half after Q1 profit miss

Nokia joins Ericsson in forecasting stronger second half after Q1 profit miss

By Olivier Sorgho

(Reuters) -Finnish telecom gear maker Nokia reported a smaller-than-expected rise in quarterly profit on Thursday as sluggish demand for 5G gear in key markets North America and India continued to weigh on sales.

“This will still be a weak year, for the mobile RAN (radio access network) market and we expect, as I said, it to gradually pick up during the year,” CEO Pekka Lundmark told reporters.

A fall in demand for 5G equipment in North America, the largest market for Nokia and Swedish rival Ericsson, and market share losses in China have forced both to temper expectations and lay off thousands of employees to shed costs.

First-quarter operating profit, excluding certain items of income and expenses, and helped by cost cuts, was 597 million euros, up from a 479 million year-earlier, as constant-currency sales fell 19%.

Four analysts polled by LSEG had on average forecast a 663 million-euro profit.

Nokia’s shares reversed course and were up 1.5% as of 0801 GMT, having fallen 3% earlier.

In a note to clients, J.P.Morgan analysts said Nokia’s weak sales trends caused the earnings miss, but added the company is well positioned for a recovery.

CEO Lundmark said an improvement in orders seen late last year continued in the first quarter despite persistent challenges in the market.

The Mobile Networks segment, which books orders for 5G gear, saw local-currency sales tumble 37% in the quarter, which Nokia said marked a low-point this year and it expects a recovery in the remainder of 2024.

Nokia in January already forecast a demand recovery in the second half of 2024. Ericsson on Tuesday said its sales would normalise in the second half.

Sales at the Network Infrastructure division fell 26%, measured in local currencies as well as net.

“Overall, the softness in the early part of the year will put more pressure on the rest of the year, and it looks like the sustainability of Nokia’s guidance will be under pressure again until the very end of the year,” said Inderes analyst Atte Riikola.

Paolo Pescatore at PP Foresight said Nokia and Ericsson’s mid-to-long term confidence in the market is encouraging, but said macroeconomic uncertainty, elections and ongoing geopolitical tensions remain huge concerns.

Nokia on Thursday repeated an outlook given in January for a comparable operating profit in 2024 of 2.3-2.9 billion euros.

Its comparable gross margin widened to 48.6% from 37.7%.

(Reporting by Olivier Sorgho in Gdansk; Editing by Anna Ringstrom, Gerry Doyle and Sharon Singleton)