Nokia Will Boost Guidance, Causing Shares to Soar
Telecommunications equipment maker Nokia (NYSE: NOK) said on Tuesday that it expects to raise its full-year outlook, sending the stock higher by as much as 12% as investors cheered the news.
Nokia has been included in the group of highly shorted “meme stocks” retail traders on Reddit’s WallStreetBets subreddit like to target, piling on in an effort to trigger a short squeeze and/or a gamma squeeze and leading to heightened volatility.
In terms of fundamentals, Nokia is making progress on its turnaround plan.
A guidance boost is coming
The company did not provide many specifics other than to say that it plans to revise its guidance upwards for 2021 thanks to continued strength in the business. Nokia will disclose full details around its forecasts when it reports second quarter earnings results on July 29.
For context, here is the previous outlook Nokia offered back in April for this year.
|Net sales (adjusted for currency fluctuations)||€20.6 billion to €21.8 billion ($24.3 billion to $25.7 billion)|
|Comparable operating margin||7% to 10%|
|Free cash flow||Positive|
|Comparable ROIC||10% to 15%|
“We are progressing well with our three-phased plan to achieve sustainable, profitable growth and technology leadership laid out at our Capital Markets Day in March,” CEO Pekka Lundmark commented in a release. “Our first half performance has shown evidence of this in good cost control and also benefited from strength in a number of our end markets.”
Nokia will still run into challenges in the second half of the year that it had previously discussed, Lundmark warned, but the company has been encouraged by its performance in the first half of 2021.
The bigger picture
Nokia has been working on its turnaround strategy for years in order to streamline operations and improve profitability. That has included a new operating model as well as corporate restructurings.
The initiative’s phases can be summarized as “Reset, Accelerate, Scale,” and Nokia had provided additional details around the multi-year effort earlier this year.
After implementing its new operating model as part of its reset, Nokia will start working in 2022 to strengthen its competitive position, accelerate revenue growth, and expand profit margins. The final step of scaling will come as Nokia pioneers new use cases and business models for its products.
Nokia expects that its total addressable market (TAM)—which includes mobile networks, network infrastructure, and cloud services—will grow at a compound annual growth rate (CAGR) of roughly 1% from 2020 to 2023.
Over that timeframe, the company plans to reduce its overall cost base by approximately €600 million by the end of 2023. Unfortunately, that will entail layoffs, as Nokia expects to have 80,000 to 85,000 employees once everything is said and done, down from the current headcount of 90,000.
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