Nokia Corporation's Q2 and half-year 2024 report has demonstrated resilience and strategic progress despite a challenging market. Q2 net sales decreased by 18% year-over-year (YoY) in constant currency. This result was attributed to Nokia’s strong performance in India in the same quarter last year. Despite this decline, there were notable improvements in several key areas.
Order intake trends, particularly in the network infrastructure segment, continued to improve. Comparable gross margin for Q2 increased by 450 bps YoY to 44.7%, driven by gains in the mobile networks segment and the resolution of a significant contract negotiation. Comparable operating margin decreased by 190 bps YoY to 9.5%, largely due to low net sales coverage of operating expenses.
Financial Strength and Cost Savings
Nokia reported a Q2 free cash flow of EUR 0.4 billion and maintained a net cash balance of EUR 5.5 billion. Nokia plans to accelerate its buyback program, reflecting strong financial health. Additionally, Nokia has made significant strides in its cost savings program, achieving EUR 400 million in run-rate savings, contributing to its long-term goal of EUR 800 million to EUR 1.2 billion gross cost savings by 2026.
President and CEO, Pekka Lundmark, expressed optimism regarding Nokia's future. He highlighted the continued positive momentum in order intake across the group, particularly in the network infrastructure segment. Lundmark expects this trend to drive meaningful improvements in net sales during the second half of the year.
Nokia also announced two strategic transactions to support its strategic goal of active portfolio management: the divestment of Alcatel Submarine Networks to the French State and the acquisition of Infinera to increase the scale and profitability of its Optical Networks business in North America.
Market Dynamics and Strategic Wins
Despite a challenging market environment, Nokia secured important design wins in the network infrastructure segment, including fiber deals in the U.S. Nokia saw a return to growth in North America, indicating a recovery from the 2023 market slowdown. With customer inventory levels normalizing, Nokia anticipates a stronger performance in the second half of the year and into 2025.
In the mobile networks segment, the market dynamic remains challenging as operators continue to be cautious, but there has been significant customer tendering activity. Notably, Nokia onboarded new customers, such as MEO in Portugal, and expanded its footprint with existing customers, demonstrating the strength of its product offering. Nokia also concluded negotiations with AT&T regarding existing RAN contracts.
In the cloud and network services segment, Nokia demonstrated good progress. The entity concluded deals and outlined organic efforts set to bring about new API capabilities and orchestration automation to customers. Notably, in Q2, Nokia signed several new Network-as-Code collaboration agreements with operators such as Orange, Telefónica, and Turkcell, along with ecosystem players, Google and Infobip, bringing its ecosystem total to 16.
In the Nokia technologies segment, an agreement with a video streaming platform marks a promising growth opportunity.
Looking Ahead
Nokia expects significant acceleration in net sales growth in the second half of the year, supported by strong order intake and cost-saving actions. Nokia is on track to achieve its full-year goals. The company expects its comparable operating profit to be at (or slightly below) the mid-point of its guidance range and anticipates its free cash flow conversion to hover around the higher end of its guidance range.
Nokia's commitment to shareholder returns is evident in its accelerated buyback program. Nokia plans to complete the EUR 600 million buyback program by the end of the year, reflecting confidence in its financial stability and future prospects.
Nokia’s full-year 2024 outlook remains unchanged. The company expects a comparable operating profit between EUR 2.3 billion and 2.9 billion and anticipates a free cash flow conversion from this profit between 30% and 60%. Nokia is optimistic about its long-term growth prospects and remains focused on executing its strategic initiatives.
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