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Nokia sees chip shortage easing as earnings beat forecast

The headquarters of Finnish telecommunications network company Nokia is seen in Espoo, Finland July 26, 2018. Lehtikuva/Mikko Stig via REUTERS

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  • Expects chip shortage to ease in second half of 2022
  • Second quarter operating profit beats estimates
  • Net sales €5.87 billion vs. €5.60 billion
  • Says cost increases are passed on to all new contracts

STOCKHOLM, July 21 (Reuters) – Finnish telecoms equipment maker Nokia (NOKIA.HE) reported quarterly operating profit on Thursday that beat market expectations, boosted by strong demand for 5G equipment, and sees signs of the global chip shortage easing.

Shares of Nokia rose 4% in early trading.

A shortage of semiconductors that began at the height of the pandemic in 2020 has affected a range of industries, including telecommunications. Nokia said it expects the pressure to ease in the second half of 2022 and the first half of next year.

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“The general direction of the semiconductor industry is positive at the moment, but we continued to have constraints in the second quarter,” chief executive Pekka Lundmark said in an interview. “Our backlog would have grown faster if there had been more components available.”

Supply chain disruptions have also driven up costs, eroded margins and forced companies to raise prices.

Chip demand is expected to fall later this year as smartphone and PC sales cool, increasing supply from other industries.

Gartner predicted that mobile phone sales would fall 7.1% this year, revising its earlier estimate of 2.2% growth. Read more

While Nokia’s margin fell slightly in the quarter, rival Ericsson’s (ERICb.ST) quarterly core earnings beat expectations. Read more

“Following last week’s margin warning from peer Ericsson, we believe Nokia is performing well against inflation and supply chain risks and we continue to see strong opportunities for margin expansion. beyond short-term headwinds,” Citi analysts wrote in a research report.

Nokia’s second-quarter comparable operating profit rose to 714 million euros ($729.71 million) from 682 million last year, beating 11 analysts’ average forecast of 636.52 million euros surveyed by Refinitiv.

Lundmark said Nokia is passing on cost increases to all new contracts, but it’s difficult to do so for existing customers.

Nokia’s net sales rose 11% to 5.87 billion euros, beating estimates of 5.60 billion.

The company, which declared in April that it was withdrawing from Russia following the invasion of Ukraine, is continuing its exit formalities.

“The vast majority of the release will have been done by the end of the year. We are currently in discussions with our customers there on how to do all the practical things, but all of our main offices in Russia have sent notices to our employees,” he added. Lundmark said.

($1 = 0.9785 euros)

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Reporting by Supantha Mukherjee in Stockholm; Editing by Muralikumar Anantharaman, Uttaresh.V and Barbara Lewis

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