Monday, June 24, 2024

Nokia Says Network Infrastructure Demand May Pick Up in 2024

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(Bloomberg) — Nokia Oyj said it might see a pickup in the second half of the year as its internet network infrastructure business brings in sales and cost-cutting measures pay off.

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The Finnish telecom said it expects adjusted operating profit for 2024 to be €2.3 billion to €2.9 billion ($2.5 billion to $3.2 billion), according to a statement on Thursday. Analysts had expected the profitability metric to remain stable from a year earlier at about €2.4 billion.

The company said there were positive signs that sales could increase in the second half of the year, described in the statement as “green shoots.” It expects “strong improvement” in its network infrastructure business, which includes building submarine cables, terrestrial broadband and fiber optic technology.

The division saw a rise in orders for networking technology used in cloud infrastructure in the fourth quarter, which it expects to continue into 2024. It also expects to supply more broadband fiber equipment in the US, taking advantage of a $42.45 billion government funding drive to expand access to high-speed internet.

Shares rose 7.2% to €3.38 at 9.24 a.m. in Helsinki, the most in 18 months. The company’s shares had fallen about 25% over the past 12 months ending Wednesday.

“Looking ahead, we expect the challenging environment of 2023 to continue during the first half of 2024, particularly in the first quarter,” Nokia’s Chief Executive Officer Pekka Lundmark said in a statement. He also announced a €600 million share buyback program over the next two years.

Nokia had a difficult 2023, with mobile operators being slow to adopt its 5G gear and legal disputes with several smartphone makers, including Oppo and Vivo, over patent payments. Net income for the year dropped to €679 million from €4.3 billion in 2022, and revenue fell to €22.3 billion from €24.9 billion.

Nokia has also been steadily increasing its market share in 5G, Lundmark said in an interview. While investment has been slow, mobile operators will have to upgrade their networks to 5G in the coming years. “I’m absolutely convinced that it is only a question of timing before we get there,” Lundmark told Bloomberg.

Read More: Ericsson Sees Weak 2024 Demand as Investment ‘Unsustainably Low’

What Bloomberg Intelligence Says:

Nokia’s 4Q results and 2024 outlook reflect the already well understood demand headwinds it faces, notably with mobile-carrier customers. Management commentary on “green shoots” and a 2H recovery led by its Network Infrastructure business may offer some optimism, but consensus’ €2.35 billion 2024 comparable operating profit is unlikely to be raised, even though it sits at the bottom of Nokia’s €2.3-€2.9 billion target range.

– Matthew Bloxham, BI media and telecoms analyst

The company recently missed out on a $14 billion contract to modernize AT&T’s wireless network, which went to competitor Ericsson AB. There are fears that the deployment of OpenRAN, which gives operators more flexibility to choose the vendors that supply its antennas and infrastructure, opens the Nordic duopoly up to competitors.

“We have not seen a massive inflow of new competition because of OpenRAN yet,” Lundmark said. “Could it come? Yes, it could, but I don’t think it will be an overnight revolution.”

It followed a better-than-expected fourth quarter, where it reported adjusted operating profit of €846 million, higher than the €762.7 million analysts had expected, according to the average estimate compiled by Bloomberg. The company had already warned it wouldn’t meet full-year outlook for sales, operating margin and free cash flow in a statement last month.

On Wednesday, Nokia said it had signed a 5G patent cross-licensing deal with Oppo, resolving their years-long dispute. Lundmark said the company was close to resolving another similar dispute, according to the statement.

(Updates with shares and context throughout)

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