Nokia Oyj Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Market Outlook: Market is turning slowly. Fixed and IP Networks show recovery, but Optical and Mobile Networks remain weaker. Order intake momentum improving, especially in North America.
• Cost Savings: Achieved EUR 500 million in run rate gross cost savings. Continuing cost control measures.
• Deals and Diversification: Signed important deals across business groups. Investing in non-CSP markets like data centers, defense, private wireless. Nokia Technologies saw growth in smartphone licensing, automotive, IoT.
• Infinera Acquisition: Received antitrust and CFIUS approval, target to close in H1 2025.

Segment Performance

• Network Infrastructure: Fixed Networks grew 9%, IP Networks grew 6%, Optical Networks declined 15%. North America had double-digit growth in all Network Infrastructure units. Net sales assumption for Network Infrastructure: down 3%-6% with operating margin 10%-12%.
• Mobile Networks: Sales declined 17%. Revised net sales decline: 19%-22% with operating margin 5%-7%.
• Cloud and Network Services: Sales declined 4%. Revised net sales decline: 4%-7% with operating margin 6%-8%.
• Nokia Technologies: Net sales grew 36% mainly from smartphone licensing, automotive, IoT, and video streaming. Annual net sales run rate ~EUR 1.3 billion.

Guidance

• 2024 Financial Outlook: Unchanged. Tracking in bottom half of comparable operating profit range and high end of free cash flow conversion.
• Network Infrastructure: Net sales expected down 3%-6% with operating margin 10%-12%.
• Mobile Networks: Revised net sales decline 19%-22% with operating margin 5%-7%.
• Cloud and Network Services: Revised net sales decline 4%-7% with operating margin 6%-8%.
• Nokia Technologies: Net sales growth driven by various segments, annual run rate ~EUR 1.3 billion.

Risks

• Market Recovery: Slower than expected market recovery in some segments.
• Cost Management: Need to continue managing costs effectively to meet margin targets.
• Competition: Intense competition in various segments, affecting market share and sales.

Question and Answer

Q: How much of gross margin improvement is from structural actions, supply chain, etc.?

A: Marco Wirén says it's from product mix, regional mix, and product cost reductions, not one-off AR benefits.

Q: Order intake momentum across NI units and net sales assumptions?

A: Pekka Lundmark says order backlog building, positive momentum in fixed and IP, double-digit growth in North America.

Q: CoreWeave win and AI exposure?

A: Pekka Lundmark explains CoreWeave deal is part of diversifying into data centers, significant growth opportunity.

Q: Mobile Networks sales and deals?

A: Pekka Lundmark says deals are gradually visible, need more deals, but market expected to recover next year.

Q: Cost savings program and targets?

A: Marco Wirén says cost savings run rate EUR 500 million, target range EUR 800M-1.2B, adjusting based on market.

Q: API strategy and progress?

A: Pekka Lundmark says organic development with 20+ partners, leading in core network cloudification.

Q: India's profitability and growth?

A: Pekka Lundmark says India will be growth driver next year, tracking towards lower end of EUR 1.5B-2B range.

Q: Non-CSP enterprise profitability?

A: Pekka Lundmark says non-CSP segments will drive operating profit and margin, but details depend on volumes.

Q: Mobile Networks operational model and IPO?

A: Pekka Lundmark says operational model is working, giving businesses agility, not commenting on IPO.

Q: AT&T 5G contract and CNS momentum?

A: Pekka Lundmark says AT&T impact on 2024, CNS 5G Core growing but legacy segments affecting overall.

Q: Reference designs for TCO savings?

A: Pekka Lundmark says have reference designs, focusing on core network qualification for TCO savings.

Q: Order backlog and turns business?

A: Marco Wirén says market strengthening but customers slow to issue purchase orders, backlog higher than a year ago.

Q: One-offs and cost base rightsizing?

A: Marco Wirén says one-offs don't impact gross margin, cost base rightsizing is preparedness, not tied to next year's outlook.