Nokia soars 7% on $653M share buyback program, but caution surfaces for 2024 challenges, reflecting uncertainties ahead despite the positive market response
KEY POINTS
- On Thursday, Nokia announced a 600 million euro ($653 million) share buyback for the current quarter following a reported profit decline in 2023.
- In the fourth quarter, Nokia recorded a 23% year-on-year decline in net sales to 5.7 billion euros, along with a 27% drop in comparable operating profit to 846 million euros.
- Nokia attributes its challenges to reduced spending by telecommunications operators on networks and a slowdown in the pace of investments in India.
Nokia revealed its plans on Thursday to initiate a two-year, 600 million euro ($653 million) share buyback program this quarter, a response to the reported profit decline in 2023.
As of 8:19 a.m. London time on Thursday, Nokia shares experienced a 7% surge, reflecting positive market sentiment towards the share buyback initiative.
Ranked among the world's largest mobile network equipment manufacturers, Nokia faced a challenging fourth quarter, posting net sales of 5.7 billion euros, marking a significant 23% year-on-year decline. Concurrently, comparable operating profit witnessed a substantial 27% year-on-year decrease, amounting to 846 million euros.
Nokia's CEO, Pekka Lundmark, acknowledged the impact of shifting customer behavior in 2023, attributed to macroeconomic factors, high-interest rates, and customer inventory digestion. Lundmark explained that inventory digestion entails telecommunications networks utilizing existing equipment rather than investing in new gear.
Lundmark expressed caution, stating that the challenging business environment witnessed in 2023 is expected to persist into 2024. The company anticipates a comparable operating profit ranging between 2.3 billion euros and 2.9 billion euros in 2024. Analysts' consensus estimates from LSEG suggest an expected operating income near 2.4 billion euros for the same period.
Nokia's recent struggles have been exacerbated by the reduction in spending by telecommunications operators on their networks. Additionally, India, a key market that had been heavily investing in its next-generation mobile networks in recent years, is now experiencing a slowdown in its pace of investment.
In summary, Nokia's decision to implement a substantial share buyback program underscores its commitment to shareholder value amid challenges in the market. The company's cautious outlook for 2024 reflects the complex interplay of macroeconomic factors, high-interest rates, and evolving customer behavior. The decline in net sales and operating profit underscores the broader challenges faced by the company, particularly in the context of reduced spending by telecommunications operators and a deceleration in the Indian market.
As Nokia navigates these challenges, the effectiveness of its strategic initiatives, including the share buyback program, will be closely monitored by investors and industry analysts. The telecommunications landscape continues to evolve rapidly, and Nokia's ability to adapt to these changes will be crucial for its future performance in an ever-dynamic market.
Nokia's primary revenue-generating division, Mobile Networks, experienced a 17% year-on-year decline in sales to 2.5 billion euros in Q4.
CEO Pekka Lundmark anticipates challenges in Mobile Networks' top line for 2024, citing a more normalized investment pace in India and the impact of AT&T's decision. Nokia faced a setback in December when AT&T opted for Ericsson, a rival, to construct a new 5G network in the U.S., resulting in a roughly 25% decline in Nokia's shares over the past year.
Lundmark expressed disappointment, deeming the AT&T deal a "disappointing development" that does not accurately reflect Nokia's technological competitiveness.
Nokia announced on Thursday a revision of its comparable operating margin target for 2026, lowering it from at least 14% to at least 13%. While Nokia envisions achieving the original 14% target, the adjustment was deemed prudent given current market conditions in Mobile Networks.
The company's cautionary outlook for 2024 aligns with industry trends, as rival Ericsson also reported a decline in sales and operating profit for Q4, signaling challenges ahead in 2024. Ericsson highlighted customer spending cuts and a slowdown in investment in India as contributing factors to the anticipated difficulties.
