Nokia Earnings: Quarter Couldn’t Have Been Much Worse; Management Expects a Rebound

Though they’re tough to find and instill little confidence, here are the positives we see following Nokia’s NOKIA third-quarter results: the company did not further reduce its 2023 guidance after doing so last quarter, implying a big sales bounceback in the fourth quarter; management expects free cash flow to go positive in the fourth quarter after it has been depressed by working capital fluctuations the past three quarters; and the terrible operating results are not company-specific. Peer Ericsson’s business has also been under pressure, and other companies that rely on U.S. wireless carrier spending have seen slowdowns. Industrywide, we expect sales growth to return in 2024.

The large year-over-year sales declines are excusable after what we’ve long seen as abnormally high customer spending in 2022 as U.S. wireless carriers bulked up inventory on top of deploying record amounts of equipment. However, the sequential downfalls in all major segments and geographies mean the customer spending slowdown has gotten worse. We still expect Nokia to be a necessary equipment supplier across multiple verticals. But the extent of the near-term pressure, with little clarity into whether it will ever return to 2022 levels—which we do not expect within the next five years—leads us to reduce our fair value estimate to EUR 5.50 from EUR 6.00. We still see the stock as significantly undervalued but don’t see a catalyst in the near term.

Total sales were down 15% year over year, excluding the additional 5% headwind from currencies. Sales declined in all operating segments—with the largest, mobile networks, posting the biggest decline at 25%—and all geographies—again with what up to now has always been the largest, North America, faring worst, with a 45% decline.