NOK Nokia Corp

By Dominic Chopping

Nokia cut its operating margin guidance, with market conditions in its mobile networks business remaining challenging due to falling operator spending and the Indian market normalizing after a period of rapid 5G roll-outs.

The Finnish telecom equipment maker said Tuesday that it now targets a comparable operating margin target of at least 13% by 2026, from at least 14% previously.

The company has been experiencing a tough time, with demand weakening due to customers facing a tough macroeconomic environment beset by high inflation and rising interest rates. This sharp downturn in telecom operator spending has seen Nokia recently outline plans to cut as much as 16% of its workforce as it seeks to save up to 1.2 billion euros ($1.29 billion).

Last week it cautioned that revenue was set to fall after U.S. operator AT&T selected Ericsson and other vendors to build out a new network.

"Nokia still sees a path to achieving the at least 14% comparable operating margin target but considering the current market conditions in mobile networks, this is deemed a prudent change," the company said.

However, the company said it sees further opportunities to increase margins beyond 2026 and believes the 14% target remains achievable over the longer term.

It expects both its network infrastructure and cloud and network services business to grow faster than the market through 2026 while mobile networks will face challenges in 2024 and 2025 before returning to grow faster than the market in 2026.

In a statement released ahead of an investor event, Nokia said it expects mobile networks net sales to decline next year, with a low-single digit operating margin. It has begun to shore up the unit for resilience and profitability which will enable it to hit a double-digit operating margin on net sales of around 10 billion euros ($10.77 billion), compared with the EUR11.5 billion sales level that would be required today.

The mobile networks unit will now also seek to accelerate its offerings to faster-growing segments, such as enterprise, cloud networks, open networks and the defense sector.

As part of these plans to increase its portfolio of products to defense customers, it said separately Tuesday that it has agreed to acquire military communication provider Fenix Group from Enlightenment Capital. Financial terms of the deal weren't disclosed.

Outside of mobile networks, the company's other business groups continue to make good progress toward their long-term targets, it said.

Moving forward, the company said its business groups will have increased strategic autonomy to pursue investment that supports growth, portfolio management, and deeper strategic partnerships.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

December 12, 2023 03:08 ET (08:08 GMT)

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