In response to a substantial decline in its profit for the year 2023, Nokia has unveiled plans for a significant share buyback program totaling 600 million euros ($653 million). The company reported a 23% year-on-year drop in net sales, amounting to 5.7 billion euros, and a 27% decrease in comparable operating profit to 846 million euros for the fourth quarter.
Nokia’s Share Reaction:
Nokia’s announcement resulted in a notable surge of 7% in its shares, reflecting a positive market response to the proposed share buyback. The company’s shares were trading higher at around 8.19 a.m. London time on Thursday.
Challenges and Forecasts:
CEO Pekka Lundmark acknowledged the challenging economic landscape and customer behavior shifts in 2023, driven by macroeconomic conditions and high-interest rates. The company anticipates these challenges to persist into 2024. Nokia forecasts a comparable operating profit ranging between 2.3 billion euros and 2.9 billion euros for the year 2024, reflecting the ongoing difficulties in the industry. This forecast is in line with analysts’ expectations, as per LSEG consensus estimates.
Impact on Mobile Networks Division:
Nokia’s Mobile Networks division, a significant revenue contributor, experienced a 17% year-on-year sales decline to 2.5 billion euros in Q4. The company attributed this downturn to a more normalized pace of investment in India and the decision by AT&T to choose Ericsson over Nokia for its 5G network project.
Adjustments to Operating Margin Target:
In response to market conditions, Nokia has revised its comparable operating margin target to be achieved by 2026 from at least 14% to at least 13%. The company still envisions reaching the original target but deems the adjustment prudent given current challenges in the Mobile Networks sector.
Nokia’s struggles align with broader industry trends, as evidenced by Ericsson reporting a decline in sales and operating profit for Q4 and signaling a challenging outlook for 2024. Both companies face headwinds from operators reducing network spending and a slowdown in investments in India.
Nokia emphasized the impact of the AT&T decision to collaborate with Ericsson, highlighting it as a disappointing development that does not reflect Nokia’s technological competitiveness. Despite the setbacks, Nokia remains focused on navigating the evolving market conditions and maintaining its strategic position.