Q1 has provided a strong start to the year, says President & CEO, Nokia at the quarterly earnings call

Nokia reported a strong start to the year as it declared its first quarter 2022 results. The vendor had 1% top-line growth in constant currency. This was 5% in reported currencies.

In reply to a question by a financial analyst that since the vendor is not able to raise prices, but is maintaining the operating margin outlook, how would it offset the inflation for input costs, the President and CEO Pekka Lundmark responded, “Well, obviously, in that full year outlook, we have taken into account everything we know and understand and assume on both the input cost development and the actual technology competitiveness and product cost development. And it’s always kind of a product of this to the product technology development that continues, and every new technology generation that we bring to the market structurally lowers the cost of the network. And then of course, there is strong inflationary pressure in the world at the moment, and we are seeing increases in input costs.

And of course, in new deals that we are pricing, in every single new deal, we embed all the information that we have on the technology competitiveness, input cost, and then in that particular customer situation, our relative competitiveness vis-a-vis competition. And all this needs to be factored in into pricing in our business because this is, in most segments, especially in mobile networks business, which does not have a very well established , in a way, global market price. Every single deal is usually separately price negotiated. And I can assure you that in all new deals that we are making, we are putting in all the input cost increases that we have seen.

And I believe, the whole industry has an interest and an intention to pass on as much of the input cost increases on to customer prices as possible. And again, in this 11% to 13.5% comparable margin forecast that we have for this year, we have taken into account everything we know about this.”

He further elucidated that supply chain continues to constrain growth, notably in mobile networks and then within network infrastructure business inside the optical networks business. What was particularly pleasing in this quarter was the strong gross margin, 40.7%, which is 250 basis points up, and this was particularly driven by mobile networks and cloud and network services, demonstrating that the vendor continues to benefit from improved product and cost competitiveness achieved through the added R&D investment. The operating margin in the quarter was 10.9%.

On the semiconductor side, the situation continues tight too. There are some areas of improvement here and there, but in the big picture, the situation continues tight. In addition to that, in the short term, the vendor is now facing some supplier-specific challenges. And then there is the situation in Shanghai region at the moment in China, which is COVID-related.

While the supply chain and inflation challenges remain as well, Marco Wiren, Chief Financial Officer further elaborated that the demand environment continues to be very strong. While the COVID situation in China could pose some short-term challenges, considering the lockdowns there, they are not expected to impact out full year. Overall, the outlook is unchanged. And the only change that has been made is adjusting the top-line guidance because of the FX movements during the quarter.

And he anticipates that the sales growth and the operational improvements that they are working on will actually offset the inflation and supply chain challenges that they see and also investments in R&D.

Lundmark said that Nokia is seeing carriers transition toward a 5G core/5G Standalone Networks, and also that it is seeing growth in its core networks business due to the adoption of private networks.

CT Bureau