Earnings Miss of the Week: Nokia’s Profit Plunges Almost 70% Amid Higher Interest Rates

Nokia (NOK) posted a profit plunge of almost 70% for the latest quarter as customers took out fewer subscriptions amid a challenging economic backdrop and rising interest rates.

The company posted net income of 133 million euros ($140.86 billion), which was down 69% from the same quarter last year. Revenue fell 20% from the year-ago quarter to 4.98 billion euros ($5.27 billion) and came in well below estimates of 5.67 billion euros ($6 billion).

The weaker-than-expected result was largely driven by a 24% sales decline in Mobile Networks, Nokia’s biggest segment by revenue, as customers in North America cut back on spending as a result of the higher interest rates, while corporate clients prioritized cash flow and drew down their inventories.

In a video call, President and CEO Pekka Lundmark cited “a weakening macroeconomic environment” and the impact of higher interest rates on commercial customer spending as hurdles in the latest quarter, but said operating margins held up “reasonably well” due to cost-control measures.

Higher interest rates make it more costly for customers to take out loans to pay for mobile subscriptions and internet services, or to subscribe to new services, all of which affect telecom companies’ revenue.

Nokia isn’t the only telecom company feeling the economic uncertainty. Swedish telecom rival Ericsson (ERIC) swung to a 30.5-billion krona ($2.78 billion) loss in its fiscal third quarter, while gross margins fell 3 percentage points from the same quarter last year. The company said the uncertainty impacting its mobile networks could persist into next year, especially as demand in North America plummeted compared with last year.

Nokia shares have fallen more than 10% since the start of the week. They’ve shed almost a third of their value so far this year, while those of rival Ericsson are down by a quarter.

Cost Cuts, Global 5G Rollout Could Benefit Nokia

In an effort to cut costs and become a leaner company, Nokia said it would cut up to 14,000 jobs, down from the current headcount of 86,000. It’s part of a broader cost-cutting plan meant to save up to 1.2 billion euros ($1.27 billion) by 2026.

Nokia could also benefit from the 5G rollout in India, where net sales more than doubled from a year ago. Lundmark said the ongoing global 5G rollout, which is “still only around 25% complete, excluding China,” remains a fundamental business driver and could boost revenue in the quarters ahead.