The News: Nokia (NYSE: NOK) reported its first quarter (Q1) 2023 results on April 20, 2023. Nokia Q1 net sales grew 9% year-over-year (YoY) in constant currency (10% reported). Comparable gross margin declined 300Bps YoY to 37.7% (reported -310bps to 37.5%), due to regional mix and a lower contribution from Nokia Technologies partly related to a license option exercised in Q4 2022. Nokia’s comparable diluted earnings per share (EPS) of EUR 0.06, reported diluted EPS of EUR 0.05. Read the Nokia Press Release here.
Nokia Fiscal Q1 2023: India 5G, Optical, and Enterprise Shine
Analyst Take: Nokia President and CEO, Pekka Lundmark, framed the company’s Q1 2023 results around the company’s refreshed brand and renewed corporate strategy, including its sales and marketing focus on establishing an identity as a B2B technology innovation pacesetter, that was deftly unveiled with much fanfare at MWC 2023. He spotlighted the launch of Nokia’s Reefshark-powered AirScale Habrok massive MIMO radios and optical networking platform PSE-6s.
Both solutions support Nokia’s strategic commitment to developing ESG into a competitive advantage, which we view as enhancing its overall portfolio positioning as well as establishing society-wide thought leadership towards enabling the telecommunications industry to deliver sustainability advances that benefit the global climate.
He highlighted that Nokia delivered a solid start to 2023 with Q1 net sales growing nine percent in constant currency. Also, comparable operating margin was 8.2%, which declined on a YoY basis due to anticipated greater seasonality in Mobile Networks’ profitability, a lower contribution from Nokia Technologies in the quarter and a negative impact from venture fund investments.
Additional Key Fiscal Q1 2023 Financial Highlights included:
- Enterprise net sales grew 62% YoY in constant currency (65% reported).
- Comparable operating margin declined YoY by 270bps to 8.2%, due to above cited factors impacting gross margin along with a significant swing in venture fund contribution, somewhat offset by disciplined cost control.
- Reported operating margin increased 70bps YoY to 7.3%. In addition to the above factors, the margin increased due to a provision recognized in the prior year compared to a partial reversal this year along with a divestment-related gain.
- Free cash flow negative EUR 0.1 bn, net cash balance of EUR 4.3bn.
- 2023 outlook unchanged in constant currency. Full year net sales outlook applying 31 March 2023 exchange rates of EUR 24.6B to 26B. Comparable operating margin guidance remains 11.5% to 14.0%.
Nokia Fiscal Q1 2023: Segment Perspectives
Nokia Network Infrastructure delivered 13% constant currency net sales growth as well as continued operating margin expansion attributed primarily to the strong performance of Optical Networks and positive contributions from IP Networks and Submarine Networks. Notably, Mobile Networks net sales expanded 13% as 5G deployments in India surged, offsetting a slowdown in North America spending.
We are especially encouraged by India’s surging 5G market which we believe can yield more good news for Nokia during 2023. Specifically, India forecasts achieving 100% coverage for 5G services by the end of December 2024, according to India’s Communications Minister Ashwini Vaishnaw. The confidence projection is based on Bharti Airtel and Reliance Jio targeting the completion of their 5G network builds within the next 15 months.
Cloud and Network Services attained net sales growth of three percent in constant currency, although Nokia cited profitability was affected by product mix. Nokia Technologies net sales declined 22% in the quarters, due primarily to a long-term license, which is now a non-contributor after an option was exercised in Q4 2022. However, Nokia expects that Nokia Technologies can return to an annual run-rate of EUR 1.4B-1.5B net sales.
We are impressed that Nokia reported maintaining robust momentum in Enterprise with 62% net sales growth in constant currency due to progress across private wireless and webscale environments with the company forecasting solid Enterprise double-digit growth across 2023.
Nokia Fiscal Q1 2023: Energy Efficiency Driving Portfolio Innovation and Vision
From our perspective, Nokia deftly unveiled a full range of energy efficiency improvements across its radio access network products. The improvements incorporated the latest ReefShark System-on-Chips (SoCs), plus its microwave transport products as well as digital services portfolio, that together enable one third lower energy consumption compared to earlier generations of products and services.
At MWC 2023, Nokia shared and refreshed its big picture vision, emphasizing making Environmental, Social, and Governance (ESG) factors themselves a driver of value creation with the debut of a new ESG strategy underpinned by five focus areas and accompanying goals. The five areas consist of Environment, Industrial Digitalization, Security & Privacy, Bridging the Digital Divide, and Responsible Business.
Equally important, Nokia is committed to accelerating growth across six strategic pillars including expanding presence in the service provider market, significantly boosting share of Enterprises within its customer mix (growing from 8% to 10%+), excelling in segments selected for competitive commitment, broadening IP monetization beyond mobile devices and boosting Nokia Technologies R&D, rolling out new business models (e.g., SaaS), and developing ESG into a competitive advantage.
Moreover, Nokia declared its full endorsement of the “In-Line” architecture when it comes to Cloud RAN. Cloud RAN uses the vertical disaggregation of the Radio Access Networks (RAN) baseband software from baseband processing hardware. To do so, the virtual Distributed Unit (vDU) and Centralized Unit (vCU) baseband functions run as containers on a Container-as-a-Service (CaaS) software layer. The functions and software run on Commercial-Off-the-Shelf (COTS) server hardware. At the heart of the servers are General-Purpose Processors (GPP) and hardware accelerators.
We anticipate that Nokia’s adoption of the In-Line Acceleration approach can help accelerate and broaden market acceptance of Cloud RAN, including across multi-sector macrocell base stations, microcell base stations, intelligent radio heads, and O-RAN vDUs implementations. It can also help advance 5G ecosystem outcomes such as Vodafone/Nokia collaboration to spread Open RAN across Europe and O-RAN Alliance support. This includes providing lower latency, higher system capacity, and high per-user data rates which power the densification of the RAN and spur deployment of additional network nodes, further propagating Cloud RAN adoption.
From our view, 5G RANs will increasingly use wider bandwidths, triggering torrential demand for high throughput microcells and full macro cell capabilities. As such, the In-Line acceleration Nokia advocates will become increasingly essential to delivering optimal 5G capacity, energy efficiency, cloud nativeness, and time-to-market advantages across O-RAN and vRAN implementations.
Nokia Fiscal Q1 2023: Key Takeaways
Nokia’s environmental focus area is especially salient to ongoing portfolio-wide energy efficiency initiatives as it stresses the company becoming an industry pacesetter in energy efficiency and circular practices. Nokia has set the bold science-based target to reduce the company’s Scope 1, 2, and 3 GHG emissions by 50% between 2019 and 2030. Moreover, Nokia has also set the target of 100% renewable electricity in all its facilities by 2025 in the journey to attaining net zero status.
By developing ESG into a competitive advantage with the topmost priority of becoming the trusted provider of choice across the telecommunications industry, we believe that Nokia has the strategy in place required to sustain portfolio innovation and improve its overall competitiveness as well as boost its financial performance throughout 2023.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Nokia Elevates Energy Efficiency as Essential to Entire Portfolio Vision
The Six Five In the Booth with Nokia at Mobile World Congress 2023
MWC 2023: Nokia Goes All-In with In-Line Acceleration for Cloud RAN
Image Credit: Nokia
Author Information
Ron is an experienced, customer-focused research expert and analyst, with over 20 years of experience in the digital and IT transformation markets, working with businesses to drive consistent revenue and sales growth.
He is a recognized authority at tracking the evolution of and identifying the key disruptive trends within the service enablement ecosystem, including a wide range of topics across software and services, infrastructure, 5G communications, Internet of Things (IoT), Artificial Intelligence (AI), analytics, security, cloud computing, revenue management, and regulatory issues.
Prior to his work with The Futurum Group, Ron worked with GlobalData Technology creating syndicated and custom research across a wide variety of technical fields. His work with Current Analysis focused on the broadband and service provider infrastructure markets.
Ron holds a Master of Arts in Public Policy from University of Nevada — Las Vegas and a Bachelor of Arts in political science/government from William and Mary.
