In a mission to navigate this turbulent economic landscape, Nokia has disclosed plans for a two-year €600 million ($653 million) share buyback program as the company reported a substantial drop in profits for 2023. Post this announcement, Nokia shares surged by 8.5% during Thursday trading.
Nokia, one of the world's prominent mobile network equipment manufacturers, reported a 23% year-on-year decline in net sales for the fourth quarter, close to €5.7 billion. Comparable operating profit also experienced a 27% year-on-year decrease, amounting to €846 million. The company connected this drop to shift in customer behavior affected by the macro-economic environment, high-interest rates, and customer inventory digestion.
"In 2023 we saw a meaningful shift in customer behavior impacting our industry driven by the macro-economic environment and high interest rates along with customer inventory digestion," Nokia CEO Pekka Lundmark said in his official statement.
The company's largest revenue division, Mobile Networks, had a 17% year-on-year sales decline to €2.5 billion in the fourth quarter. Lundmark emphasized challenges in 2024 connected to a more normalized pace of investment in India and the impact of AT&T's decision. In December, AT&T chose Nokia's rival, Ericsson, for a $14 billion five-year contract and Nokia's share declined approximately 25% over the past year.
Nokia's struggles are reflective of broader industry setbacks, as many telecommunications operators scale down spend on network infrastructure. The company had already mentioned cost-cutting and reducing its workforce by up to 14,000 people, resulting in cost savings of up to €1.2 billion by 2026.
Despite the challenging economic climate, Nokia shows resilience, revealing an adjusted operating profit of €846 million in the last quarter of 2023, exceeding analysts' expectations of €763 million. Nokia expresses optimism for the future, with a forecast of comparable operating profit between €2.3 billion and €2.9 billion in 2024. Analysts, according to LSEG consensus projects operating income to hover around €2.4 billion in 2024. The company's commitment to a share buyback program exhibits confidence in its financial security and a strategic action to boost shareholder value.
Investors also reacted positively to Nokia's strong free cash flow generated in the last quarter and the share buyback program, resulting in a more than 6% increase in Nokia shares during early trading on the Helsinki stock exchange. Lundmark showed optimism about probable improvements in the second half of 2024, citing recovering order intake for network infrastructure and recent contract wins.
