The Stock of Nokia Rises as Cost-cutting Limits the Damage From the 23% Drop in Sales

Nokia witnessed a surge in its shares on Thursday, propelled by the telecom equipment maker's report of better-than-expected margins, even though its sales fell short of estimates.

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Nokia's U.S.-listed shares (NOKIA, +11.23%, NOK, +11.36%) experienced a remarkable 12% increase as the company disclosed a loss of €33 million, accompanied by a 23% decrease in revenue, amounting to €5.71 billion. On a comparable basis, Nokia indicated that it would have earned €568 million, marking a 39% decline. Analysts surveyed by Visible Alpha had anticipated an adjusted profit of €659 million with sales reaching €6.27 billion.

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Similar to its counterpart Ericsson earlier in the week, Nokia attributed the challenging economic climate as a factor impacting operator spending. Despite this, Nokia expressed optimism, noting the emergence of encouraging signs or "green shoots."

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Investors found solace in Nokia's gross margin, which experienced only a marginal dip of 0.4 percentage points to 43.1% on a comparable basis. Nokia attributed this resilience to advancements in mobile networks and cloud and network services, which offset a decline in its technologies division. Sandeep Deshpande, an analyst at JPMorgan, commended Nokia for beating expectations on gross margin, stating, "Despite the revenue miss, cost control and mix shift to more software meant that gross margin beat by 264bps."

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In addition to its financial performance, Nokia unveiled a new €600 million stock buyback program, spanning two years. The company also provided guidance, projecting a comparable operating profit ranging from €2.3 billion to €2.9 billion, aligning with analyst estimates.

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However, not all analysts were unequivocally positive. Andrew Gardiner, an analyst at Citi, maintained a sell rating on the company with a target of €2.7. He acknowledged Nokia's efforts in implementing further cost cuts but expressed concern that the company is recovering from a deeper setback than initially anticipated in December.

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In conclusion, Nokia's robust gross margin performance, coupled with its strategic initiatives like the stock buyback program, has resonated positively with investors, leading to the notable increase in its shares. Despite the revenue shortfall, the company's focus on cost control and software-oriented shifts has contributed to a more favorable outlook, aligning with its guided operating profit and fostering a sense of confidence in the market. Nonetheless, some analysts remain cautious, emphasizing the challenges Nokia faces in its journey to recovery.

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