Nokia, a leading Finnish phone company, has revised its operating margin guidance due to challenging market conditions in its mobile networks business. This update comes just a week after Nokia lost out on a $14 billion contract with AT&T for the upgrade of the firm’s U.S. networks.
Decreasing Operating Margin Guidance
Nokia has adjusted its operating margin guidance from a minimum of 14% by 2026 to a minimum of 13%. This change is mainly attributed to the anticipated slowdown in sales in 2023, as well as the normalization of trade in India in 2024. The rapid deployment of Nokia's 5G network in India this year led to a significant increase in sales, but the company expects a return to the usual level next year.
Impact on Nokia's Stock
Despite these adjustments, Nokia's shares (NOKIA, +1.05%; NOK, -1.89%) rose by 0.9%. However, the stock has experienced a decline of 31% so far this year.
AT&T Chooses Ericsson Over Nokia
Nokia's updated guidance follows AT&T's recent decision to award a $14 billion contract for the modernization of its U.S. mobile networks to Ericsson (ERIC, +0.35%), a direct rival of Nokia. This deal came as a major blow to Nokia, which subsequently warned of a significant hit to its revenues.
Ericsson's Open RAN Technology
The contract between AT&T and Ericsson will involve the deployment of vendor-neutral Open RAN technology for AT&T's U.S. networks. This technology fosters greater competition between suppliers and enables Ericsson to expand and enhance AT&T's networks.
Declining Sales in Mobile Networks
Nokia attributes the decreasing sales in its mobile networks to various factors, including the challenging market environment, AT&T's decision to partner with Ericsson, and the normalization of spending in India.
Nokia's Troubles Extend Beyond AT&T Contract Loss
Barclays analysts, led by Claudia Gilbertallen, are suggesting that Nokia's recent downward trajectory goes beyond the loss of the AT&T contract. They believe that the pain in the company's mobile networks business runs deeper and will persist for a longer period.
In an effort to mitigate these challenges, Nokia had previously announced plans in October to lay off 14,000 employees out of its 86,000 workforce by the end of 2026. This move is intended to save €1.2 billion ($1.3 billion) following a sharp 69% drop in third-quarter profits.
Throughout this year, the Espoo, Finland-based company has experienced a decline in revenue due to the global economic slowdown and reduced infrastructure spending by mobile operators.
Despite these setbacks, Nokia remained optimistic about its long-term prospects. The company believes it can increase its margins to a promising 14% beyond 2026. This projection takes into account cost-cutting measures within its mobile networks division, which will partially offset the decline in revenue.
In a separate development, Nokia recently secured a contract to build an Open RAN network in Germany. This signifies a significant comeback for Nokia in Deutsche Telekom's commercial networks.
Indeed, while challenges remain, Nokia is actively working towards overcoming them and positioning itself for future success.