Nokia Cuts Long-Term Operating Margin Guidance

Finnish company Nokia announced on Tuesday that it is reducing its long-term operating margin guidance for 2026. The telecom equipment maker cited market conditions in its mobile networks business as the reason for this decision. The operating margin guidance has been lowered from 14% to 13%. Nokia anticipates facing challenges in 2024 and 2025 but expects to see faster growth in 2026.

The reduction in guidance comes as a consequence of AT&T's move to award a $14 billion contract to Nokia's Swedish competitor, Ericsson, for the construction of a new U.S. network. AT&T aims to establish a commercial-scale open radio access network from next year onwards.

Despite the downward revision, Nokia's American depositary receipts (ADRs) experienced a 3.5% increase in premarket trading. This may be due to relieved investors who were concerned that Nokia's long-term guidance would be even worse after the recent news about AT&T's deal with Ericsson.

In addition to the change in operating margin guidance, Nokia announced last week a two-year delay in reaching its double-digit operating margin target for mobile networks.

Nokia expects a decline in mobile networks sales in 2024, with AT&T's decision playing a significant role. Other factors contributing to this decline include the challenging spending environment and the normalization of the Indian market following rapid 5G deployment.

Despite the current conditions, Nokia believes that there are still opportunities to increase margins beyond 2026 and remains confident in achieving a comparable operating margin of at least 14% in the long term.

Nokia shared some positive news as it revealed its partnership with Germany's Deutsche Telekom to start rolling out its commercial open RAN network.

So far in 2023, Nokia's ADRs have experienced a decline of 33% as of Monday's close.