Nokia Corporation reported disappointing fourth-quarter 2023 results, with both the top and bottom lines falling short of the Zacks Consensus Estimate. The company’s performance was hampered by a challenging macro environment resulting in sluggish demand, high interest rates, and inventory adjustments, leading to a decline in year-over-year revenue. The normalization of 5G deployments in India and restrained spending in North America also contributed to the revenue downturn. These results have prompted concern from investors and industry analysts alike.

The Dismal Net Income Picture

Nokia recorded a net loss of €33 million ($35.51 million) or a loss of €0.01 (a penny) per share in the fourth quarter, a stark contrast from an income of €3,152 million or €0.56 per share in the year-ago quarter. Comparable profit was €568 million ($611.2 million) or €0.10 (11 cents) per share, down from €929 million or €0.16 per share in the year-earlier quarter. The plummet was primarily driven by a significant decline in net sales year over year. The bottom line fell short of the Zacks Consensus Estimate, exacerbating the disappointment among investors.

In 2023, Nokia reported a net income of €679 million or €0.12 per share compared to €4,259 million or €0.75 per share in the previous year. The full-year comparable profit stood at €1,623 million or €0.29 per share compared to €2,481 million or €0.44 per share in 2022.

A Decline in Revenues

Quarterly net sales stood at €5,707 million ($6,141.82 million), down 23% from €7,449 million in the year-ago quarter. Revenues fell short of the Zacks Consensus Estimate of $6,662 million, reflecting sluggish demand trends across all verticals. Moreover, the company reported a decline in full-year revenues, with 2023 figures at €22,258 million compared to €24,911 million in 2022.

The Impact on Segment Results

Net sales from Network Infrastructure totaled €2,003 million ($2,155.61 million), down 26% on a reported basis and 24% on a constant-currency (cc) basis. The weak performance was affected by various factors, including decreased revenues from Optical Networks, IP Networks, Fixed Networks, and Submarine Networks. The Mobile Networks segment also experienced a decline in revenues, particularly in North America, India, and Europe due to a slowdown in 5G deployments and inventory depletion. Cloud and Network Services and Nokia Technologies also reported declines in net sales.

Region-wise, net sales from the Middle East & Africa witnessed growth, but Europe, Asia Pacific, North America, and Latin America all saw declines in revenues.

Financial Details and Outlook

The comparable gross margin declined slightly to 43.1% in the December quarter, with the company also reporting a decline in comparable operating profit. The company generated €1,870 million net cash from operating activities in the fourth quarter of 2023 and had €6,234 million in cash and cash equivalents as of December 31, 2023. Nokia’s outlook for 2024 suggests an expectation of a comparable operating margin in the range of €2.3-€2.9 billion, with free cash flow estimated within 30-60% of comparable operating profit. Despite the projected improvement in Network Infrastructure and potential revenue boosts, the normalized pace of investment in certain regions and specific business decisions are anticipated to impact the company’s performance.

Despite the challenging state of affairs, management anticipates improvement in certain segments. However, the company has much ground to cover to regain investor confidence and address the ongoing challenges that have impacted its financial performance. These factors have contributed to the company’s current Zacks Rank of #4 (Sell).

In the context of the challenging environment, Nokia’s performance is reflective of broader market conditions, causing concern among analysts and those within the investment community. Despite this, some investors continue to seek opportunities within the technology sector, with companies such as NVIDIA Corporation offering potential alternatives.