Nokia today posted Financial Report for the first quarter of 2023. With strong sales growth in Q1 2023, Nokia has been able to beat market expectations. Nokia announced net sales growth of 10% Year-on-Year (9% in constant currency) in the first quarter of 2022 thanks to strong growth in Enterprise sales.
Nokia also announced 62% sales growth Year-on-Year in Enterprise sales. Here are the earning highlights provided by Nokia for Q1 2023.
- Net sales grew 9% y-o-y in constant currency (10% reported).
- Enterprise net sales grew 62% y-o-y in constant currency (65% reported).
- Comparable gross margin declined 300bps y-o-y to 37,7% (reported -310bps to 37,5%), due to regional mix and a lower contribution from Nokia Technologies partly related to a license option exercised in Q4 2022.
- Comparable operating margin declined y-o-y by 270bps to 8,2%, due to the above mentioned factors impacting gross margin along with a significant swing in venture fund contribution, somewhat offset by disciplined cost control.
- Reported operating margin increased 70bps y-o-y to 7,3%. In addition to the above factors, the margin increased due to a provision recognized in the prior year compared to a partial reversal this year along with a divestment related gain.
- Comparable diluted EPS of EUR 0,06; reported diluted EPS of EUR 0,05.
- Free cash flow negative EUR 0,1bn, net cash balance of EUR 4,3bn.
- 2023 outlook unchanged in constant currency. Full year net sales outlook applying 31 March 2023 exchange rates is EUR 24.6bn to 26.2bn. Comparable operating margin guidance remains 11.5% to 14.0%.
This is what Nokia CEO has to say about the financial performance of the company.
We started this year with the unveiling of a renewed corporate strategy and refreshed brand. This reflects who we are today – a B2B technology innovation leader unleashing the exponential potential of networks. Q1 also saw the launch of our new industry-leading optical networking platform PSE-6s and AirScale Habrok, our latest 5G massive MIMO radios powered by a new generation of ReefShark chipsets. Both products are designed to help our customers achieve more with lower power consumption, supporting our intent to develop ESG into a competitive advantage.
Financially we delivered a solid start to 2023 with Q1 net sales growing 9% in constant currency. Our comparable operating margin was 8.2%, a decline of 270bps year-on-year, which was primarily due to expected greater seasonality in Mobile Networks’ profitability, a lower contribution from Nokia Technologies in the quarter and a negative impact from venture fund investments.
Network Infrastructure had another great quarter with 13% constant currency net sales growth and continued operating margin expansion. We saw particular strength in Optical Networks and good growth in both IP Networks and Submarine Networks. Mobile Networks net sales grew 13% as 5G deployments in India ramped up, more than offsetting a slowdown in North America spending. As we expected, we are seeing greater seasonality between the first and second half of the year in terms of profitability for Mobile Networks.
Cloud and Network Services achieved net sales growth of 3% in constant currency, but profitability was impacted by product mix. Nokia Technologies net sales declined 22% in the quarter, which was largely due to a long-term license which is no longer contributing after an option was exercised in Q4 2022. We remain confident Nokia Technologies will return to an annual run-rate of EUR 1.4-1.5bn of net sales.
We maintained our strong momentum in Enterprise with 62% net sales growth in constant currency. We continue to make good progress in both webscale and private wireless and we expect to see strong double-digit growth for the full year.
One of our strategic pillars is to actively manage our portfolio to secure a leading position in all segments where we decide to compete. To support that goal, we have signed agreements to divest part of our Radio Frequency Systems business and our VitalQIP business. In addition, we recently agreed to the sale of our stake in the joint venture TD Tech, subject to closing conditions.
Looking forward, we are starting to see some signs of the economic environment impacting customer spending. Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty. We remain on track to deliver another year of growth in 2023 so our outlook is unchanged with the expectation that profitability in the second half of the year will be stronger than the first half.