Nokia cuts FY25 profit forecast on currency hit despite network growth

Nokia significantly reduced its full-year comparable operating profit forecast to between €1.6 billion and €2.1 billion, down from a previous range of €1.9 billion to €2.4 billion. This revision is primarily attributed to an estimated €230 million hit from currency fluctuations and a €50-80 million impact from tariffs. The guidance cut follows a challenging Q2, where comparable operating profit declined 29% to €301 million and operating margin fell to 6.6%, despite growth in Network Infrastructure and Cloud segments, while Mobile Networks revenue dropped 13%.

Analysis

Nokia has materially lowered its full-year comparable operating profit forecast to a range of €1.6 billion to €2.1 billion, a significant reduction from the previous €1.9 billion to €2.4 billion. The downgrade is attributed to substantial external headwinds, including an estimated €230 million impact from foreign exchange fluctuations and up to €80 million from tariffs. This revised guidance follows a challenging second quarter where comparable operating profit fell 29% to €301 million, causing the operating margin to contract sharply to 6.6% from 9.5% in the prior year. The performance highlights a stark divergence between business segments: the core Mobile Networks division saw revenue contract by 13% on a comparable basis, with notable sales declines in North America, India, and Greater China. In contrast, the Network Infrastructure and Cloud and Network Services segments demonstrated robust growth, with comparable revenues increasing by 8% and 14%, respectively. Despite the profit decline, the company generated €88 million in free cash flow and declared a €0.04 per share dividend, signaling some underlying financial stability. However, the upcoming Capital Markets Day on November 19 is now a critical event, as new CEO Justin Hotard is expected to outline a strategy to address these operational challenges.

Key Decisions for Investors

• The significant downward revision of the full-year profit forecast, driven by a 29% decline in Q2 operating profit and severe weakness in the core Mobile Networks segment, warrants a cautious or bearish stance in the near term.
• Investors should monitor the performance of the Network Infrastructure and Cloud segments, whose strong growth is a key offset to weakness elsewhere, as their continued expansion is critical to any potential recovery thesis.
• The upcoming Capital Markets Day on November 19 is a pivotal event; it may be prudent to await the new CEO's strategic plan for addressing margin compression and the Mobile Networks downturn before making significant new capital allocations.
• Consider the divergence in customer segments, where a 4% decline in traditional telecom provider sales contrasts with 15% growth in enterprise sales, as a key indicator of the company's strategic pivot and future growth drivers.