Nokia (NOK.US) and Ericsson (ERIC.US) financial reports share highlights: North American market recovery

The Zhitong Finance App learned that the latest results announced by Finnish telecom equipment supplier Nokia (NOK.US) on Thursday showed that thanks to the cost reduction plan, operating profit for the third quarter increased 9% year on year. Like telecom competitor Ericsson (ERIC.US), it believes that demand in some regions is recovering at an accelerated pace, and Nokia has found a new source of performance growth — data centers.

However, Nokia's net sales for the third quarter fell about 8% year over year to 4.33 billion euros (about 4.7 billion US dollars), lower than analysts' general expectations of 4.76 billion euros, mainly due to the decline in sales in the Indian market. This data, which fell short of expectations, caused its stock price in European stocks to drop 3% at one point.

The financial indicator “comparable profit before tax”, which the market focuses on, rose to 454 million euros, exceeding analysts' general expectations of 424 million euros.

Nokia maintains a profit outlook range of 2.3 billion euros to 2.9 billion euros for the full year of 2024, but says the profit process is currently in the lower half of this range.

Compared to Nokia, Ericsson's earnings report released earlier this week is more optimistic. The financial report shows that Ericsson's adjusted profit before interest and tax for the third quarter was SEK 7.3 billion (US$699 million), far exceeding analysts' expectations of 5.6 billion kroner. The adjusted operating margin was 11.9%, compared to market expectations of 8.5%, mainly due to the fact that cooperation between the company and the US operator AT&T began to show results, and indicated that demand growth in the North American market exceeded the company's expectations.

However, the good news is that the two giants in the European telecom industry, Nokia and Ericsson both said that the North American telecom market has begun to show signs of strong growth after many years of weakness, but Nokia's market share in the region declined over the years after losing contracts with US telecom giants Verizon (VZ.US) and AT&T (T.US).

Nokia CEO Pekka Lundmark said in an interview: “We have indeed seen a very bad cycle... Now that the recession is almost over and it is beginning to gradually recover, which is great, but it (telecommunications) will never be a huge growth market.” He cautioned that growth may even be slower than previously anticipated.

However, Lundmark emphasized, “The North American market is already showing pretty good signs, and we achieved strong growth in network infrastructure in the third quarter.”

Nokia's total telecommunications market is around $84 billion. In search of more engines to drive performance growth, Nokia has been targeting large data centers and the defense sector. Currently, Nokia has found a new source of growth — data centers. In June, Nokia spent 2.3 billion US dollars to acquire US optical network equipment manufacturer Infinera to target data center operators critical to generative AI applications such as ChatGPT, in an effort to provide core network equipment for these large-scale data centers and promote the more efficient operation of AI training/inference systems.

“This is where new growth comes from, and this new growth trend has begun,” said Lundmark.

Large-scale data centers can be described as the core large-scale infrastructure project for artificial intelligence. These huge data centers scattered all over the world are essential for the efficient operation of generative artificial intelligence applications such as ChatGPT and the update and iteration of AI models such as GPT-4O. Telecom network equipment provided by Nokia is expected to be mainly used in data centers and server clusters to process and transmit data streams efficiently and at high speed.

Nokia's recent acquisition of Infinera is a US-based company focused on optical network solutions, which include the provision of equipment, software and related services aimed at increasing network capacity and efficiency. By integrating Infinera's optical networking solutions, Nokia will be able to provide network hardware that is more suitable for data centers.

Compared with traditional electrical signal transmission technology, optical networks have the advantages of higher bandwidth, lower latency, and higher energy efficiency. This enables data centers to quickly process and transfer large amounts of data, especially playing an important role in AI applications that require large-scale computing. With the support of optical networks, data transmission between GPU processors, storage systems, and networks will be more efficient, and this is extremely important for generative AI such as ChatGPT, especially applications that require processing large amounts of data input and real-time processing capabilities, such as Dall-E Wensheng Map and Sora Wensheng Video Big Model.

Although demand from the Indian customer base dropped sharply this year, after Nokia received a major contract from Indian telecom service provider Vodafone Idea last month, sales from this market may resume its growth curve, and Nokia is also expected to secure another contract from India's other telecom service provider Bharti Airtel (Bharti Airtel).

Regarding the Indian market, Lundmark said, “India is expected to resume its growth trend next year.”