Nokia is turning to share buybacks to bolster its sentiments on Wall Street. The company has confirmed a $653 million buyback program to begin this quarter. The confirmation comes on the company delivering disappointing 2023 results as the company struggled amid changing consumer behavior.
Nokia Financial Results
The stock popped 8.5% on the buyback news, helping erase a good chunk of the losses accrued last year. Nokia stock fell by 26% in 2023, underperforming the S&P 500, and recouped 2022 losses to end the year up 24%.
The world’s largest mobile network equipment maker said its fourth-quarter sales fell 23% year over year to 5.7 billion euros. On the other hand, its operating profit fell 27% to 846 million euros. The Company’s biggest division by revenue reported a 17% year-over-year decline in revenue to 2.5 billion euros.
According to the company’s chief executive officer, the disappointing results can be attributed to a shift in customer behavior that impacted the industry. In addition, the company struggled amid a deteriorating macro environment fueled by high interest rates and customer inventory digestion.
Most of the company’s customers, including telecommunication networks, opted to use gear they had already bought instead of purchasing new ones. The decision affected the company’s sales volume as inventory built up. Additionally, Nokia feels the full brunt of customers cutting back on network spending.
India, which was seen as one of the company’s big and key markets, has started presenting significant challenges. After years of investing in next-generation networks, the country’s investment drive appears to have peaked, affecting Nokia’s business level.
Nokia Headwinds
The slowdown in India is one of many headwinds that Nokia has to contend with. The company has already suffered a major blow in the aftermath of US mobile carrier AT&T inking a deal to acquire its mobile network equipment from Ericsson for its new 5G networks in the US. The fact that AT&T will rely heavily on Ericsson translates to a significant loss of business.
Despite the string of setbacks, Nokia expects its comparable profit in 2024 to range between 2.3 billion and 2.4 billion euros. It is a better-than-expected forecast as analysts are projecting an operating profit of 2.4 billion euros. However, the company has lowered its comparable operating margin target to be achieved by 2026 to at least 13% from an initial target of 14%.
Nevertheless, other companies besides Nokia feel the pressure in the industry. Despite inking a deal with AT&T, Ericsson warned of the significant impact of a decline in demand for its 5G gear. The company is projecting a challenging 2024 as sales for 5G equipment slowdown in North America. Amid the current market uncertainties, Ericsson expects revenue declines from the Radio Access Network market as customers remain cautious about investing.
Like Nokia, Ericsson has had to lay off some staff in response to the slowdown. In addition, it has warned that it could pursue further cost cuts should the demand for 5G equipment slow down significantly. The company delivered a 16% slide in revenue in the fourth quarter to $6.89 billion. Operating profit fell to 7.37 billion Swedish crowns from 8.908 billion crowns delivered in the same period last year.
