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Nokia's (NOK) Q3 Earnings Miss Estimates, Revenues Fall Y/Y
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Nokia Corporation (NOK - Free Report) reported soft third-quarter 2023 results, with the top and bottom lines falling short of the respective Zacks Consensus Estimate. Demand softness across several business segments led to a year-over-year revenue contraction in the quarter. Reduced spending from communication service providers, owing to macroeconomic uncertainties and inventory corrections in North America, impacted the top line. Higher interest rates also affected operators’ spending. Modest growth in the Middle East and Africa and 5G installation in India partially supported the net sales.
Net Income
Nokia registered a net profit of €133 million ($144.7 million) or €0.02 (2 cents) per share in the third quarter compared with €428 million or €0.08 per share in the year-ago quarter.
Comparable profit was €299 million ($325.4 million) or €0.05 (5 cents) per share, down from €551 million or €0.10 per share in the prior-year quarter. The decline was primarily attributable to lower net sales. The bottom line missed the Zacks Consensus Estimate of 9 cents.
Nokia Corporation Price, Consensus and EPS Surprise
Quarterly net sales stood at €4,982 million ($5,421.6 million), down 20% from €6,241 million in the year-ago quarter. A decrease in net sales across all verticals, including a sharp decline in the Mobile Networks and Nokia Infrastructure segment, impeded the top line during the quarter. Revenues fell short of the Zacks Consensus Estimate of $6,310 million.
Segment Results
Net sales from Network Infrastructure totaled €1,807 million ($1,966.4 million), down 18% on a reported basis and 14% on a constant-currency (cc) basis. At cc, the IP Networks registered a 24% decline year over year, owing to soft demand trends in North America. Positive trends in India, the Middle East and Africa partially reversed this decline.
Optical Networks increased 4% on a cc basis, backed by healthy traction in the PSE-V solutions. A slowdown in fiber investments and inventory correction in North America, combined with low demand in other regions, led to a 19% year-over-year decline in Fixed Networks. At cc, revenues from Submarine Networks were down 5% year over year. The top line fell short of our revenue estimate of €2,110.8 million.
Mobile Networks generated revenues of €2,157 million ($2,347.3 million), down 24% year over year on a reported basis and 19% at cc. Net sales missed our revenue estimate of €2,553.4 million. The segment reported a net sales decline in all regions except India and moderate growth in the Middle East and Africa. Net sales doubled year over year in India, driven by 5G deployments. North American clients emphasized cash flow and inventory digestion, which led to a net sales decline in this vertical.
Net sales from Cloud and Network Services were €742 million ($807.4 million), down 7% year over year on a reported basis and 2% on a cc basis. The downside was induced by a declining trend in Cloud and Cognitive Services, Core Networks and Business Applications Growth in Enterprise Solutions partially supported the top line in this segment. The top line in this segment fell short of our revenue estimate of €773 million.
Nokia Technologies contributed €258 million ($280.8 million) compared with €305 million in the year-ago quarter. Net sales declined 15% on a reported basis and 14% at cc. Due to an option exercised by a long-term licensee, all the outstanding revenues were recognized in the fourth quarter of fiscal 2022. The decreasing market share of the smartphone vendor also contributed to the top-line decline.
Region-wise, net sales from India witnessed a solid growth of 102% year over year on a reported basis to €567 million. Growth in the Optical Networks and 5G deployments led to higher net sales from this region. Europe recorded a revenue decline of 12% on a reported basis to €1,345 million, primarily due to a decrease in Nokia Technologies, Fixed Networks and IP Networks.
North America reported a 45% decline on a reported basis to €1,256 million due to cautious spending behavior and inventory adjustments. Net sales decreased 31% to €286 million in Greater China, owing to a decline in Mobile Networks and Network Infrastructure. Revenues from the Asia Pacific region fell 21% year over year to €503 million due to declining trends in Mobile Networks, Network Infrastructure, Cloud and Network Services.
Other Details
In the September quarter, the comparable gross margin declined to 39.2% from 40.4% in the year-ago quarter, mainly due to the negative impact of the regional mix in Mobile Networks. Comparable operating profit declined 36% to €424 million ($461.4 million), with a margin of 8.5%.
Cash Flow and Liquidity
Nokia utilized €303 million ($329.7 million) net cash for operating activities in the third quarter of 2023. As of Sep 30, 2023, the company had €4,605 million ($4,868.8 million) in cash and cash equivalents, with long-term interest-bearing liabilities of €3,562 million ($3,776 million). By Sep 30, 2023, it repurchased around 65 million shares at an average price of approximately €3.95 per share.
Outlook
For 2023, Nokia expects revenues in the range of €23.2-€24.6 billion. The comparable operating margin is estimated in the band of 11.5-13%. Free cash flow is estimated within 20-50% of comparable operating profit. Capital expenditure is estimated to be €700 million.
Zacks Rank & Stocks to Consider
Nokia currently carries a Zacks Rank #4 (Sell).
Here are some better-ranked stocks that investors may consider.
Ubiquiti Inc. (UI - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is a key pick in the broader industry. Headquartered in New York, it offers a comprehensive portfolio of networking products and solutions for service providers and enterprises at disruptive prices. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It boasts a proprietary network communication platform that is well-equipped to meet end-market customer needs. In addition, it is committed to reducing operational costs by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of the Ubiquiti Community.
NVIDIA Corporation (NVDA - Free Report) , currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , presently carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
Note: €1 = $1.08824 (period average from Jul 1, 2023, to Sep 30, 2023) €1 = $1.05728 (as of Sep 30, 2023)
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Nokia's (NOK) Q3 Earnings Miss Estimates, Revenues Fall Y/Y
Nokia Corporation (NOK - Free Report) reported soft third-quarter 2023 results, with the top and bottom lines falling short of the respective Zacks Consensus Estimate. Demand softness across several business segments led to a year-over-year revenue contraction in the quarter. Reduced spending from communication service providers, owing to macroeconomic uncertainties and inventory corrections in North America, impacted the top line. Higher interest rates also affected operators’ spending. Modest growth in the Middle East and Africa and 5G installation in India partially supported the net sales.
Net Income
Nokia registered a net profit of €133 million ($144.7 million) or €0.02 (2 cents) per share in the third quarter compared with €428 million or €0.08 per share in the year-ago quarter.
Comparable profit was €299 million ($325.4 million) or €0.05 (5 cents) per share, down from €551 million or €0.10 per share in the prior-year quarter. The decline was primarily attributable to lower net sales. The bottom line missed the Zacks Consensus Estimate of 9 cents.
Nokia Corporation Price, Consensus and EPS Surprise
Nokia Corporation price-consensus-eps-surprise-chart | Nokia Corporation Quote
Revenues
Quarterly net sales stood at €4,982 million ($5,421.6 million), down 20% from €6,241 million in the year-ago quarter. A decrease in net sales across all verticals, including a sharp decline in the Mobile Networks and Nokia Infrastructure segment, impeded the top line during the quarter. Revenues fell short of the Zacks Consensus Estimate of $6,310 million.
Segment Results
Net sales from Network Infrastructure totaled €1,807 million ($1,966.4 million), down 18% on a reported basis and 14% on a constant-currency (cc) basis. At cc, the IP Networks registered a 24% decline year over year, owing to soft demand trends in North America. Positive trends in India, the Middle East and Africa partially reversed this decline.
Optical Networks increased 4% on a cc basis, backed by healthy traction in the PSE-V solutions. A slowdown in fiber investments and inventory correction in North America, combined with low demand in other regions, led to a 19% year-over-year decline in Fixed Networks. At cc, revenues from Submarine Networks were down 5% year over year. The top line fell short of our revenue estimate of €2,110.8 million.
Mobile Networks generated revenues of €2,157 million ($2,347.3 million), down 24% year over year on a reported basis and 19% at cc. Net sales missed our revenue estimate of €2,553.4 million. The segment reported a net sales decline in all regions except India and moderate growth in the Middle East and Africa. Net sales doubled year over year in India, driven by 5G deployments. North American clients emphasized cash flow and inventory digestion, which led to a net sales decline in this vertical.
Net sales from Cloud and Network Services were €742 million ($807.4 million), down 7% year over year on a reported basis and 2% on a cc basis. The downside was induced by a declining trend in Cloud and Cognitive Services, Core Networks and Business Applications Growth in Enterprise Solutions partially supported the top line in this segment. The top line in this segment fell short of our revenue estimate of €773 million.
Nokia Technologies contributed €258 million ($280.8 million) compared with €305 million in the year-ago quarter. Net sales declined 15% on a reported basis and 14% at cc. Due to an option exercised by a long-term licensee, all the outstanding revenues were recognized in the fourth quarter of fiscal 2022. The decreasing market share of the smartphone vendor also contributed to the top-line decline.
Region-wise, net sales from India witnessed a solid growth of 102% year over year on a reported basis to €567 million. Growth in the Optical Networks and 5G deployments led to higher net sales from this region. Europe recorded a revenue decline of 12% on a reported basis to €1,345 million, primarily due to a decrease in Nokia Technologies, Fixed Networks and IP Networks.
North America reported a 45% decline on a reported basis to €1,256 million due to cautious spending behavior and inventory adjustments. Net sales decreased 31% to €286 million in Greater China, owing to a decline in Mobile Networks and Network Infrastructure. Revenues from the Asia Pacific region fell 21% year over year to €503 million due to declining trends in Mobile Networks, Network Infrastructure, Cloud and Network Services.
Other Details
In the September quarter, the comparable gross margin declined to 39.2% from 40.4% in the year-ago quarter, mainly due to the negative impact of the regional mix in Mobile Networks. Comparable operating profit declined 36% to €424 million ($461.4 million), with a margin of 8.5%.
Cash Flow and Liquidity
Nokia utilized €303 million ($329.7 million) net cash for operating activities in the third quarter of 2023. As of Sep 30, 2023, the company had €4,605 million ($4,868.8 million) in cash and cash equivalents, with long-term interest-bearing liabilities of €3,562 million ($3,776 million). By Sep 30, 2023, it repurchased around 65 million shares at an average price of approximately €3.95 per share.
Outlook
For 2023, Nokia expects revenues in the range of €23.2-€24.6 billion. The comparable operating margin is estimated in the band of 11.5-13%. Free cash flow is estimated within 20-50% of comparable operating profit. Capital expenditure is estimated to be €700 million.
Zacks Rank & Stocks to Consider
Nokia currently carries a Zacks Rank #4 (Sell).
Here are some better-ranked stocks that investors may consider.
Ubiquiti Inc. (UI - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is a key pick in the broader industry. Headquartered in New York, it offers a comprehensive portfolio of networking products and solutions for service providers and enterprises at disruptive prices. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It boasts a proprietary network communication platform that is well-equipped to meet end-market customer needs. In addition, it is committed to reducing operational costs by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of the Ubiquiti Community.
NVIDIA Corporation (NVDA - Free Report) , currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , presently carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
Note: €1 = $1.08824 (period average from Jul 1, 2023, to Sep 30, 2023)
€1 = $1.05728 (as of Sep 30, 2023)