Nokia cuts margin guidance a week after losing AT&T contract

Nokia on Tuesday cut its operating margin guidance citing tough market conditions for its mobile networks business, just a week after it lost out on a $14 billion AT&T contract to upgrade the firm’s U.S. networks. 

The Finnish phone company cut its operating margin guidance from at least 14% by 2026 to at least 13%, as it pointed to a slowdown in sales in 2023 and the normalization of trade in India in 2024 following a boom this year driven by rapid deployment of its 5G network in the country.  

Nokia shares NOKIA, +1.33% NOK, -1.89% rose 0.9%, though the stock is down 31% this year.

Nokia’s new guidance follows AT&T’s T, -1.77% decision last week to award a $14 billion contract to modernize its U.S. mobile networks to the Finnish firm’s rival, Ericsson ERIC, +0.35%, in a major hit to Nokia which later warned of a significant hit to its revenues. 

The contract will see Ericsson build out AT&T’s U.S. networks using vendor-neutral Open RAN technology that allows for greater competition between suppliers. 

The Finnish company said a challenging market environment, AT&T’s decision and normalization of Indian spending would lead to declining sales in mobile networks.

Barclays analysts led by Claudia Gilbertallen said Nokia’s new guidance signals Nokia’s troubles run deeper than the loss of the AT&T contract. “The pain in its mobile networks business appears to be greater and longer driven by the AT&T contract loss,” the Barclays analysts said. 

Nokia in October previously outlined plans to lay off 14,000 of its 86,000 staff by the end of 2026, with a view to saving €1.2 billion ($1.3 billion), after the company reported a sharp 69% drop in its third-quarter profits. 

The Espoo, Finland-based company’s revenue have suffered this year due to the slowdown in the global economy and lower spending on infrastructure by mobile operators. 

In the long term, Nokia, however, said it still sees opportunities to increase its margins up to 14% beyond 2026, as it noted cost cutting measures in its mobile networks division will partially offset lower revenues.

Separately, Nokia on Tuesday said it had won a contract to build out an Open RAN network in Germany. The contract marks Nokia’s return into Deutsche Telekom’s commercial networks.