Company News

Nokia reports strong net sales growth; outlook unchanged for Q1 2023

April 20, 2023

Highlights.

Net sales grew 9% y-o-y in constant currency (10% reported).

Enterprise net sales grew 62% y-o-y in constant currency (65% reported).

Comparable gross margin declined 300bps y-o-y to 37,7% (reported -310bps to 37,5%), due to regional mix and a lower contribution from Nokia Technologies partly related to a license option exercised in Q4 2022.

Comparable operating margin declined y-o-y by 270bps to 8,2%, due to the above mentioned factors impacting gross margin along with a significant swing in venture fund contribution, somewhat offset by disciplined cost control.

Reported operating margin increased 70bps y-o-y to 7,3%. In addition to the above factors, the margin increased due to a provision recognized in the prior year compared to a partial reversal this year along with a divestment related gain.

Comparable diluted EPS of EUR 0,06; reported diluted EPS of EUR 0,05.

Free cash flow negative EUR 0,1bn, net cash balance of EUR 4,3bn.

2023 outlook unchanged in constant currency. Full year net sales outlook applying 31 March 2023 exchange rates is EUR 24.6bn to 26.2bn. Comparable operating margin guidance remains 11.5% to 14.0%.

“We started this year with the unveiling of a renewed corporate strategy and refreshed brand. This reflects who we are today – a B2B technology innovation leader unleashing the exponential potential of networks. Q1 also saw the launch of our new industry-leading optical networking platform PSE-6s and AirScale Habrok, our latest 5G massive MIMO radios powered by a new generation of ReefShark chipsets. Both products are designed to help our customers achieve more with lower power consumption, supporting our intent to develop ESG into a competitive advantage.

Financially we delivered a solid start to 2023 with Q1 net sales growing 9% in constant currency. Our comparable operating margin was 8.2%, a decline of 270bps year-on-year, which was primarily due to expected greater seasonality in Mobile Networks’ profitability, a lower contribution from Nokia Technologies in the quarter and a negative impact from venture fund investments.

Network Infrastructure had another great quarter with 13% constant currency net sales growth and continued operating margin expansion. We saw particular strength in Optical Networks and good growth in both IP Networks and Submarine Networks. Mobile Networks net sales grew 13% as 5G deployments in India ramped up, more than offsetting a slowdown in North America spending. As we expected, we are seeing greater seasonality between the first and second half of the year in terms of profitability for Mobile Networks.

Cloud and Network Services achieved net sales growth of 3% in constant currency, but profitability was impacted by product mix. Nokia Technologies net sales declined 22% in the quarter, which was largely due to a long-term license which is no longer contributing after an option was exercised in Q4 2022. We remain confident Nokia Technologies will return to an annual run-rate of EUR 1.4-1.5bn of net sales.

We maintained our strong momentum in Enterprise with 62% net sales growth in constant currency. We continue to make good progress in both webscale and private wireless and we expect to see strong double-digit growth for the full year.

One of our strategic pillars is to actively manage our portfolio to secure a leading position in all segments where we decide to compete. To support that goal, we have signed agreements to divest part of our Radio Frequency Systems business and our VitalQIP business. In addition, we recently agreed to the sale of our stake in the joint venture TD Tech, subject to closing conditions.

Looking forward, we are starting to see some signs of the economic environment impacting customer spending. Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty. We remain on track to deliver another year of growth in 2023 so our outlook is unchanged with the expectation that profitability in the second half of the year will be stronger than the first half.” Said Pekka Lundmark, President and CEO, on Q1 2023 results.

Financial Results

EUR million (except for EPS in EUR)	Q1’23	Q1’22	YoY change	Constant currency YoY change
Reported results
Net sales	5 859	5 348	10%	9%
Gross margin %	37,5%	40,6%	(310)bps
Research and development expenses	(1 108)	(1 072)	3%
Selling, general and administrative expenses	(729)	(675)	8%
Operating profit	426	354	20%
Operating margin %	7,3%	6,6%	70bps
Profit for the period	289	219	32%
EPS, diluted	0,05	0,04	25%
Net cash and interest-bearing financial investments	4 304	4 904	(12)%
Comparable results
Net sales	5 859	5 348	10%	9%
Gross margin %	37,7%	40,7%	(300)bps
Research and development expenses	(1 093)	(1 052)	4%
Selling, general and administrative expenses	(642)	(581)	10%
Operating profit	479	583	(18)%
Operating margin %	8,2%	10,9%	(270)bps
Profit for the period	342	416	(18)%
EPS, diluted	0,06	0,07	(14)%
ROIC1	15,8%	19,5%	(370)bps

Business group results	Network Infrastructure		Mobile Networks		Cloud and Network Services		Nokia Technologies		Group Common and Other
EUR million	Q1’23	Q1’22	Q1’23	Q1’22	Q1’23	Q1’22	Q1’23	Q1’22	Q1’23	Q1’22
Net sales	2 248	1 974	2 567	2 268	760	736	242	306	48	76
YoY change	14%		13%		3%		(21)%		(37)%
Constant currency YoY change	13%		13%		3%		(22)%		(38)%
Gross margin %	38,0%	34,7%	33,8%	39,8%	32,8%	38,6%	100,0%	99,7%	(12,5)%	2,6%
Operating profit/(loss)	344	195	137	171	(20)	20	149	220	(131)	(23)
Operating margin %	15,3%	9,9%	5,3%	7,5%	(2,6)%	2,7%	61,6%	71,9%	(272,9%)	(30,3)%

Outlook

	Full Year 2023
Net sales1	EUR 24.6 billion to EUR 26.2 billion1 (2 to 8% growth in constant currency)
Comparable operating margin2	11.5 to 14.0%
Free cash flow2	20 to 50% conversion from comparable operating profit

The outlook, long-term targets and all of the underlying outlook assumptions described below are forward-looking statements subject to a number of risks and uncertainties as described or referred to in the Risk Factors section later in this release. Along with Nokia’s official outlook targets provided above, below are outlook assumptions by business group that support the group level outlook. The comments for relative growth by business group are provided to give a reference on how we expect each to perform relative to the overall group.

2023 total addressable market (update)		Nokia business group assumptions
	Size (EUR bn)1	Constant currency growth	Net sales growth	Operating margin
Network Infrastructure2	47 (update)	4%	In-line to below group	11.0 to 14.0%
Mobile Networks3	51 (update)	4% (update)	Faster than group	7.0 to 10.0%
Cloud and Network Services	28 (update)	3% (update)	In-line to below group	5.5 to 8.5%

Nokia provides the following approximate outlook assumptions for additional items concerning 2023:

	Full year 2023	Comment
Nokia Technologies operating profit	Largely stable	Assuming closure of outstanding litigation / renewal discussions we expect largely stable operating profit in Nokia Technologies in 2023. Nokia currently assumes free cash flow slightly greater than operating profit in Nokia Technologies.
Group Common and Other operating profit	Negative EUR 350-400 million (update)	This includes central function costs largely stable at below EUR 200 million and an increase in investment in long-term research now above EUR 100 million. This line also accounts for Radio Frequency Systems (RFS) and could be impacted by any positive or negative revaluations in Nokia’s venture funds in 2023.
Comparable financial income and expenses	EUR 0 million	As interest rates have increased we now expect financial income and expenses to be approximately balanced.
Comparable income tax rate	~25%	Following the re-recognition of deferred tax assets at the end of 2022 we now provide an assumption based on a % tax rate instead of an absolute amount.
Cash outflows related to income taxes	EUR 700 million	Cash outflows related to income taxes are expected to increase due to mandatory capitalization of R&D costs under U.S. tax laws as well as evolving regional mix.
Capital Expenditures	EUR 700 million (update)

Long-Terms targetes
Nokia’s long-term targets remain unchanged from those introduced with its Q4 2021 financial results. The targets had an associated timeline of 3-5 years which remains unchanged and implies by 2024-2026. These targets remain intended to show Nokia’s ambition to deliver continuous improvement in the business over the time period.