Shares of Nokia Slump After Sales Miss, Cautious Comments

Nokia's shares experienced a significant drop on Thursday as the Finnish telecom equipment maker reported substantial challenges in its mobile networks and cloud and network services sectors. The company's performance in these areas has been underwhelming, contributing to a broader decline in its financial health.

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Nokia's stock fell by 6% in Helsinki trading, reflecting investor concerns. Despite this recent decline, the stock has still gained 10% over the course of the year. The sharp fall on Thursday was largely attributed to disappointing quarterly results, which revealed a €142 million ($155 million) loss. This loss was accompanied by an 18% decrease in sales, which amounted to €4.47 billion.

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Excluding a significant €514 million impairment charge on its submarine networks business, Nokia indicated that its profit would have still declined by 20%, resulting in €328 million. This adjusted figure highlights the underlying challenges the company is facing even when accounting for one-time charges. Analysts polled by Visible Alpha had expected a profit of €264 million on sales of €4.74 billion, indicating a significant miss on both profit and revenue expectations.

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Last month, Nokia took strategic steps to address some of these challenges. The company announced the sale of its submarine networks business to the French government. This divestiture is part of a broader strategy to streamline its operations and focus on core areas of growth. Simultaneously, Nokia inked a deal to acquire Infinera, a move aimed at bolstering its optical and networks business. These actions indicate Nokia's proactive approach to restructuring its business in response to market conditions.

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Nokia continues to grapple with tough comparisons to India's 5G deployment. The rollout of 5G in India created a temporary surge in demand, and now the company is facing the aftereffects of that peak. Furthermore, Nokia noted that mobile operators globally remain cautious, a sentiment that is negatively impacting its business. Last year, in response to these difficult conditions, Nokia announced plans to cut 14,000 jobs. This decision underscores the severity of the challenges the company is facing and its efforts to reduce costs and improve efficiency.

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Adding to Nokia's woes is the fallout from losing a significant portion of AT&T's business. This loss has had a notable impact on Nokia's revenue stream. According to UBS, Nokia expects its sales in mobile networks to AT&T to remain largely stable year-on-year in 2024 but then approximately halve in 2025. This projected decline highlights the long-term challenges Nokia faces in maintaining its customer base and revenue levels.

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Looking ahead, Nokia has provided guidance on its financial performance for the remainder of the year. The company stated that its comparable operating profit might reach the midpoint, or slightly below, its previous guidance range of between €2.3 billion and €2.9 billion. This cautious outlook reflects the ongoing uncertainties and challenges in the market. On a more positive note, Nokia expects its free cash flow to be at the higher end of its previous guidance range, between 30% and 60% of core profit. This indicates some level of financial resilience despite the broader challenges.

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In conclusion, Nokia's recent financial results and the subsequent drop in its share price underscore the significant challenges the company is facing. From tough market conditions in mobile networks and cloud services to the impact of losing major clients like AT&T, Nokia is navigating a complex and challenging landscape.

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The company's strategic moves, such as the sale of its submarine networks business and the acquisition of Infinera, show a commitment to restructuring and focusing on growth areas. However, the road ahead remains fraught with challenges, and Nokia will need to continue adapting to maintain its position in the highly competitive telecom equipment market.

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