Nokia(NOK) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net sales decline of 7% in Q3 2024, primarily driven by Mobile Networks, but achieved a significant gross margin improvement of 490 basis points year-on-year [7][8][10] - Free cash flow was strong at over EUR 600 million for the quarter, resulting in a net cash balance of EUR 5.5 billion [6][14] - The operating margin was solid at 2.5%, supported by strong gross margins and cost control measures [7][8] Business Line Data and Key Metrics Changes - Fixed Networks grew by 9% and IP Networks by 6%, with significant improvements in gross margins across all business groups [5][9] - Mobile Networks sales declined by 17%, with a notable decrease in India due to elevated 5G deployment in the previous year [10] - Cloud and Network Services sales declined by 4%, but adjusted for divestitures, net sales would have been stable [11] - Nokia Technologies saw a 36% increase in net sales, driven by smartphone licensing agreements and growth in automotive and IoT sectors [12] Market Data and Key Metrics Changes - North America showed double-digit growth in all three business units of Network Infrastructure, while other regions experienced declines, except for Europe, which grew by 1% due to Nokia Technologies [13] - India experienced a 43% decline in net sales, but the company expects meaningful growth in the region next year [38] Company Strategy and Development Direction - The company is focusing on diversifying its business and expanding into high-growth non-CSP markets, particularly in data centers and private wireless [6][19] - The Infinera acquisition is expected to enhance scale in North America and exposure to webscale customers, with a target to close the deal in H1 2025 [6][20] - The company aims to lower the required net sales for double-digit operating margins in Mobile Networks from EUR 11.5 billion to EUR 9.5 billion by 2026 [18] Management's Comments on Operating Environment and Future Outlook - Management noted that while the market is slowly recovering, challenges remain, particularly in Mobile Networks [4][15] - The company is optimistic about the recovery in Fixed Networks and IP Networks, with inventory issues largely resolved [15][16] - Management emphasized the importance of maintaining pricing discipline and executing strategic pillars during this period [16] Other Important Information - The company has achieved EUR 500 million in run-rate gross cost savings and is on track to meet its cost-saving targets [6][41] - The company plans to hold a Capital Markets Day in 2025 after the Infinera deal closes [26] Q&A Session Summary Question: Can you help us understand the gross margin improvement? - Management clarified that the gross margin improvement was due to product mix, regional mix, and product cost reductions, and not impacted by the reversal of trade receivable allowances [30] Question: What is the trajectory of order intake across different units? - Management noted positive momentum in orders and a book-to-bill ratio above one, particularly in Fixed and IP Networks, with North America showing strong growth [32] Question: Can you elaborate on the CoreWeave win and its implications? - Management highlighted that the CoreWeave contract is central to their strategy to diversify into data centers, which is expected to be a significant growth area [36] Question: How is the Indian market expected to perform next year? - Management expects meaningful growth in India next year, tracking towards a normalized run rate above 2022 levels [38] Question: What is the status of the Mobile Networks sales? - Management indicated that while new deals are promising, more are needed to meet sales goals, and they are focusing on non-CSP segments for growth [40] Question: Can you discuss the API strategy and its importance? - Management expressed satisfaction with their organic development of APIs and emphasized the need for cloud-native transformation to enable efficient automation [46] Question: What is the outlook for the AT&T 5G contract? - Management confirmed that AT&T volumes are expected to decrease significantly next year, following accelerated revenue recognition this year [65] Question: What is driving the CNS division's flat performance despite 5G Core momentum? - Management explained that legacy segments within CNS are declining, but strategic growth segments like 5G Core are performing well [67]