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Nokia (NOK) Trims Operating Margin Guidance, Revises Strategy
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Nokia Corporation (NOK - Free Report) has released updated guidance with a revised operating margin outlook for fiscal 2026. The company also provided insights into its modified approach to business operations and preliminary assumptions for fiscal 2024.
Nokia’s business segments cater to distinct customer bases, each with unique research and development requirements, market fluctuations and different target margins. Moving forward, it has decided to grant more autonomy to its business verticals regarding investment decisions, growth strategies, portfolio management and strategic partnerships. Along with streamlining the operating model, Nokia will also disclose the cash flow and regional sales figures for each business group. This greater transparency will likely provide investors with enhanced clarity regarding each segment's financial performance.
The Mobile Network segment is witnessing a declining trend in 2023, and management anticipates that the market environment will likely remain unfavorable in this segment in the near future. AT&T’s decision to replace Nokia with a single vendor in the form of Ericsson is expected to have a negative impact on the top line. The slowdown in 5G deployment in India is also a concern.
Consequently, the operating margin is estimated to be in the low single digits in 2024. However, the company is taking various initiatives to boost resilience in its operations and improve profitability. It is also aiming to capitalize on fast-growing markets such as Cloud RAN, O-RAN, Enterprise and defense. In Mobile Networks, Nokia is optimistic about returning to faster-than-market growth in 2026, with a comparable operating margin range of 6-9%.
In 2024, the company is expecting mid-single-digit net sales growth (at constant currency) with steady operating profit in the Nokia Infrastructure segment. The positive momentum is supported by robust performance in optical networks and secured enterprise contracts in IP networks. Influx of government funding in the second half of 2024 will likely induce a recovery in the fixed networks. Backed by these positive factors, the Network Infrastructure division is expected to achieve an operating margin ranging from 12% to 15% by fiscal 2026.
In 2024, Nokia expects modest revenue growth in the Cloud and Network services, supported by the steady deployment of 5G core technology and strength in the enterprise sector. The company is focusing on integrating SaaS and Network as Code to bolster its business model. A strong focus on digital operations, private wireless, AI and analytics, security and 5G core will likely boost prospects.
The company has registered faster-than-market growth in these segments in recent periods and is aiming to sustain this favorable trend. In Cloud and Network services, a stable to slightly increasing operating margin is projected for 2024, with a comparable operating margin estimated in the range of 7-10% for fiscal 2026.
Nokia Technologies has secured long-term patent license agreements with major smartphone players like Apple and Samsung. The company is also extending its business presence into automotive, multimedia and consumer electronics. Nonetheless, the primary focus remains on resolving outstanding litigation issues with smartphone clients. Operating profit from this segment will likely exceed EUR 1 billion in 2024 upon the successful settlement of the litigation issue by the end of 2023. In 2026, management is expecting a comparable operating profit of more than EUR 1.1 billion.
For 2026, Nokia reduced its overall comparable operating margin target to at least 13% from the prior estimation of at least 14%. Weakness in the Mobile Networks vertical is expected to have a negative impact on operating profit. However, the company reiterated its revenue guidance, which is expected to grow faster than the market in 2026. The outlook for free cash flow is also kept unchanged and is expected at 55-85% conversion from comparable operating profit.
NOK aims to create new business and licensing opportunities in the consumer ecosystem. It facilitates its customers to move away from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency. It seeks to expand its business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.
The stock has declined 36.3% in the past year against the industry’s growth of 0.1%.
Image Source: Zacks Investment Research
Nokia currently has a Zacks Rank #4 (Sell).
Stocks to Consider
Model N Inc , carrying a Zacks Rank #2 (Buy) at present, delivered an earnings surprise of 20.78%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 3.33%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.
NVIDIA Corporation (NVDA - Free Report) , currently carrying a Zacks Rank #2, delivered an earnings surprise of 18.99%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 19.64%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is gaining market traction in 200- and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
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Nokia (NOK) Trims Operating Margin Guidance, Revises Strategy
Nokia Corporation (NOK - Free Report) has released updated guidance with a revised operating margin outlook for fiscal 2026. The company also provided insights into its modified approach to business operations and preliminary assumptions for fiscal 2024.
Nokia’s business segments cater to distinct customer bases, each with unique research and development requirements, market fluctuations and different target margins. Moving forward, it has decided to grant more autonomy to its business verticals regarding investment decisions, growth strategies, portfolio management and strategic partnerships. Along with streamlining the operating model, Nokia will also disclose the cash flow and regional sales figures for each business group. This greater transparency will likely provide investors with enhanced clarity regarding each segment's financial performance.
The Mobile Network segment is witnessing a declining trend in 2023, and management anticipates that the market environment will likely remain unfavorable in this segment in the near future. AT&T’s decision to replace Nokia with a single vendor in the form of Ericsson is expected to have a negative impact on the top line. The slowdown in 5G deployment in India is also a concern.
Consequently, the operating margin is estimated to be in the low single digits in 2024. However, the company is taking various initiatives to boost resilience in its operations and improve profitability. It is also aiming to capitalize on fast-growing markets such as Cloud RAN, O-RAN, Enterprise and defense. In Mobile Networks, Nokia is optimistic about returning to faster-than-market growth in 2026, with a comparable operating margin range of 6-9%.
In 2024, the company is expecting mid-single-digit net sales growth (at constant currency) with steady operating profit in the Nokia Infrastructure segment. The positive momentum is supported by robust performance in optical networks and secured enterprise contracts in IP networks. Influx of government funding in the second half of 2024 will likely induce a recovery in the fixed networks. Backed by these positive factors, the Network Infrastructure division is expected to achieve an operating margin ranging from 12% to 15% by fiscal 2026.
In 2024, Nokia expects modest revenue growth in the Cloud and Network services, supported by the steady deployment of 5G core technology and strength in the enterprise sector. The company is focusing on integrating SaaS and Network as Code to bolster its business model. A strong focus on digital operations, private wireless, AI and analytics, security and 5G core will likely boost prospects.
The company has registered faster-than-market growth in these segments in recent periods and is aiming to sustain this favorable trend. In Cloud and Network services, a stable to slightly increasing operating margin is projected for 2024, with a comparable operating margin estimated in the range of 7-10% for fiscal 2026.
Nokia Technologies has secured long-term patent license agreements with major smartphone players like Apple and Samsung. The company is also extending its business presence into automotive, multimedia and consumer electronics. Nonetheless, the primary focus remains on resolving outstanding litigation issues with smartphone clients. Operating profit from this segment will likely exceed EUR 1 billion in 2024 upon the successful settlement of the litigation issue by the end of 2023. In 2026, management is expecting a comparable operating profit of more than EUR 1.1 billion.
For 2026, Nokia reduced its overall comparable operating margin target to at least 13% from the prior estimation of at least 14%. Weakness in the Mobile Networks vertical is expected to have a negative impact on operating profit. However, the company reiterated its revenue guidance, which is expected to grow faster than the market in 2026. The outlook for free cash flow is also kept unchanged and is expected at 55-85% conversion from comparable operating profit.
NOK aims to create new business and licensing opportunities in the consumer ecosystem. It facilitates its customers to move away from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency. It seeks to expand its business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.
The stock has declined 36.3% in the past year against the industry’s growth of 0.1%.
Image Source: Zacks Investment Research
Nokia currently has a Zacks Rank #4 (Sell).
Stocks to Consider
Model N Inc , carrying a Zacks Rank #2 (Buy) at present, delivered an earnings surprise of 20.78%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 3.33%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.
NVIDIA Corporation (NVDA - Free Report) , currently carrying a Zacks Rank #2, delivered an earnings surprise of 18.99%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 19.64%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is gaining market traction in 200- and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.