Nokia Oyj has worsened its long-term profitability target.
The mentioned company has changed its vision of the future, which has become less rosy and now contains a glow of optimism of lesser strength, after losing an important contract in the United States. The firm also reported that over the next two years, its activities in the sphere of 5G networks will face various problems. In this case, there is a mood for difficult times and a willingness to overcome negative circumstances. This determination shows that for Nokia, failures are not a reason for despair, forcing it to accept and stop.
The Finnish telecommunications provider has lowered its target for comparable operating margins to at least 13%. The previous forecast provided for this indicator at a level of not less than 14%. This is not a catastrophic change in expectations, which at the same time does not negate the fact that the vision of the future is deteriorating. In this case, the company implies a target that it plans to achieve by 2026.
Information about the change in the outlook assessment is contained in a Nokia statement released on Tuesday, December 12.
The company last week missed out on a major contract with AT&T, the U.S. telecommunications giant. In this case, Ericsson AB, a Swedish technology company that specializes in the manufacture of telecommunications equipment, won.
The cost of the contract for the modernization of the AT&T wireless network is $14 billion. The funds will be paid within five years. Ericsson AB will upgrade AT&T’s infrastructure to use 5G technology.
For Nokia, the loss of the contract was a painful blow. Against the background of the news about this failure, the company’s share price showed a drop of 5.9%.
Ericsson AB currently provides two-thirds of the AT&T network. Nokia accounts for the remaining third.
The analyst Matthew Bloxham says that the Swedish company’s belated but bold move to introduce open radio access network technology is likely to bring the first dividends under the new contract with AT&T.
The loss of the contract has raised questions about Nokia’s competitiveness in mobile networks. The company stayed on the sidelines during the start of the 5G cycle. Nokia found itself on the periphery of the new technological process because it had sets of microcircuits that actually did not have such characteristics as competitiveness. The company, realizing its position, has made efforts to meet the new technological realities. The result was not the best. In this case, the company faced adverse external factors, including the deterioration of the global economic situation and rising interest rates. These realities have formed a source of pressure on spending on 5G. In an unfavorable economic situation, telecommunications service providers are forced to reduce their investment volumes.
Nokia’s chief executive officer, Pekka Lundmark, said that AT&T informed his company that the decision to sign the contract was due to financial considerations, noting that in this case technology and the level of competitiveness were not the main factors. He also recalled that the brand he heads continues to cooperate with the American telecommunications giant in other areas, including network infrastructure, cloud, and network services.
Nokia said the lowered target for 2026 was a reasonable change. Also, the company still estimates an increase in margin to 14% in the long term as a realistic scenario.
Nokia expects conditions for its mobile networks to be challenging next year. The company justifies its forecast by saying that the market has shown a decline in 2023 and drawing attention in this context to the fact that the situation in India has become more moderate after a period of active growth.
The firm, led by Pekka Lundmark, predicts that AT&T’s decision to concentrate its radio network around a single provider will lead to lower net sales of mobile networks next year. Nokia aims to achieve low operating profitability, expressed in single digits, by reducing costs. The company’s mobile network unit will focus on fast-growing segments, including enterprise, cloud services, O-RAN, and the defense sector.
Nokia announced the signing of an agreement with Deutsche Telekom AG to launch the deployment of a multidisciplinary Open RAN network in Germany.
As we have reported earlier, Huawei Challenges 5G State Aid Rules in Spain.