U.S. operators are still expanding their 5G networks but they are purchasing 5G gear at a slower rate than they did in 2022 and vendors like Nokia are feeling the pinch.
The Finish equipment vendor reported lower-than-expected Q1 earnings and attributed it to a “softening in North America.” But the company said it expects this situation to improve in the second half of 2023 as North American operators deplete their existing 5G inventory that they stocked up on last year amid worries of silicon shortages.
Nokia’s experience isn’t unique. Ericsson also reported during its Q1 earning call with investors that it was seeing slowing sales of 5G as customers are using up their elevated inventories of equipment.
Nokia President and CEO Pekka Lundmark assured investors on the company’s Q1 earnings call that there is more growth to come in North America because about 50% of cell sites in the mid-band spectrum still need to be upgraded to 5G. In addition, Lunkmark said that the company has regained market share in the U.S. among Tier 2 operators and he said that Nokia’s relationship with T-Mobile is strong. “We are a key supplier and have a long-term agreement with them,” he said.
Lundmark also noted that Nokia did compensate for some of the softening in North America by picking up new 5G business in India and Europe.
The Finnish vendor reported a Q1 adjusted operating profit of $524.94 million with an operating margin of 8.2%, which is down from 10.9% in the year-ago quarter. Net sales, however, were up 9% to $6.5 billion in the quarter. The company also reported a net profit of $317 million, which was up 32% from the previous year primarily due to its Network Infrastructure business where it saw strong growth in its optical networking products.
Nokia also reported its overall Mobile Networks business grew 13% to $2.8 billion thanks to increases in 5G spending in India and Europe, where the company said it is gaining market share.
However, in overall sales by region, Nokia saw an 12% decline year over year in constant currency in sales in North America from $2 billion in Q1 2022 to $1.82 billion in Q1 2023.
Lundmark said that the company believes that North America will rebound in the second half of the year as operators run through the inventory that they stockpiled in 2022. “Operators will have to continue to invest,” he said, adding that the “fundamentals of the business remain healthy.”
Perhaps the biggest news for Nokia in Q1 is the continued growth in the company’s Enterprise business where the company’s net sales grew 62% year over year in constant currency to $620 million. Nokia said that growth was particularly strong with webscale companies where sales more than doubled in the quarter.
In private wireless, Nokia said that it now has 595 customers and that it added 73 new enterprise customers in the quarter. Lundmark noted that Nokia has a “strong pipeline of new opportunities” in this area and that there are thousands of potential enterprise customers.