Nokia, the Finnish telecom company, experienced a massive setback as its shares plummeted following a 32% decline in second-quarter operating profit. The weak demand for its 5G equipment was cited as the primary reason for the disappointing financial results. The company’s Helsinki-listed stock took a hit, dropping by 8% shortly after the market opened in London. The comparable operating profit fell to 423 million euros in the second quarter, marking a significant decrease from the 619 million euros reported in the same period last year. Additionally, net sales declined by 18% to 4.47 billion euros, reaching the lowest level since the fourth quarter of 2015.
Nokia’s CEO, Pekka Lundmark, attributed the decline in profits to “ongoing market weakness,” particularly highlighting a tough comparison period with the peak of India’s rapid 5G deployment. He also noted that mobile network operators are being cautious in their investments, further complicating the company’s financial outlook. Despite the challenges, Nokia remains hopeful about a “stabilizing” industry environment in the second half of the year, anticipating a significant acceleration in net sales growth based on recent order intake. Lundmark acknowledged that the net sales recovery was delayed compared to earlier expectations, affecting the business group’s net sales assumptions for 2024.
In the face of financial difficulties, Nokia is focusing on cost-saving measures to improve its bottom line. The company aims to achieve its full-year outlook by targeting a performance towards or just under the mid-point of its comparable operating profit guidance for the year. Nokia’s plans include significant cost-cutting efforts, such as the elimination of up to 14,000 jobs announced in October. The goal is to reduce gross costs by between 800 million and 1.2 billion euros by 2026. Nokia reported that it had made substantial progress in its cost savings program, with measures already in place to decrease costs by 400 million euros.
Competition and Industry Trends
Nokia faced a major setback when it lost a significant contract with U.S. telecom giant AT&T to rival company Ericsson at the end of last year. This loss highlighted the intense competition in the telecom industry, with companies like Nokia and Ericsson engaging in cost-cutting initiatives to stay competitive. The industry-wide battle against a slowing economy and reduced infrastructure spending by mobile operators has added further pressure on companies to streamline operations and improve financial performance.
Nokia’s recent financial troubles shed light on the challenges facing the company in a competitive and rapidly evolving industry. The decline in second-quarter operating profit and net sales, coupled with the loss of a major contract, have forced Nokia to reassess its business strategies and implement cost-saving measures. While the company remains optimistic about the future, the road to recovery will undoubtedly be a difficult one. Only time will tell if Nokia can overcome its financial hurdles and regain its position in the telecom market.