Nokia (NYSE:NOK) anticipates a demand recovery in the second half of the year, as it announced on Thursday, overcoming weak sales of 5G equipment by efficiently managing costs, leading to quarterly operating profit that surpassed expectations. The Finnish telecom gear maker, like its rival Ericsson (ERICb.ST), faces a challenging year as mobile operators trim down purchases of new 5G gear.
In the fourth quarter, Nokia’s comparable earnings before interest and tax (EBIT) declined to 846 million euros ($920.2 million), compared to 1.15 billion euros in the same period the previous year. However, the result exceeded analyst expectations of 767.5 million euros in a poll by LSEG. The strong performance was attributed to improved gross margins as sales shifted towards software.
Despite the challenging environment, J.P. Morgan analysts noted, “Overall, we see results as strong in a difficult environment.” Nokia’s share price rose approximately 7% in early morning trade, making it the biggest gainer on the pan-European STOXX 600 index (.STOXX).
Nokia’s forecast for 2024 anticipates a comparable operating profit ranging from 2.3 billion euros to 2.9 billion euros, compared to LSEG estimates of 2.38 billion euros. CEO Pekka Lundmark expressed optimism about a recovery in the network infrastructure segment, emphasizing signs of improvement and an expected demand rebound in the second half of the year. Lundmark highlighted growing order intake, driven by demand from major technology companies and government spending on infrastructure.
In response to market dynamics, Nokia previously outlined plans in October to cut up to 14,000 jobs. The company has recently signed a patent deal with Chinese smartphone maker Oppo and is close to resolving a dispute with another company. However, Lundmark confirmed Nokia’s withdrawal from its Chinese joint venture with Huawei. The joint venture holding company, TD Tech Holding, has entered an agreement to sell the entire business to a consortium, including Huawei Technologies.
Despite ongoing challenges in the 5G equipment market, Nokia’s strategic cost management and focus on software sales position the company to navigate the landscape and capitalize on potential demand recovery in the latter part of the year.
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