Nokia's Boost in U.S. Business: A Double-Edged Sword

Nokia announced on Thursday that it has secured additional work from a major American customer as tariff-related challenges threaten to impact its profit margins.

Nokia dropped by up to 10% after the Finnish firm announced lower-than-expected profits for the first quarter, revealed that tariffs would negatively affect their second-quarter earnings without providing specific figures for the annual toll. Despite restating its yearly financial goals, they noted that achieving the higher end of this target might prove difficult.

The company's operating profit dropped by 74% to €156 million ($177 million), with revenues decreasing by 1% to reach €4.39 billion.

Nokia reported an unforeseen one-off contract settlement totaling €120 million, which affected their finances due to dealings with a particular client since 2019; however, they chose not to specify this company. According to UBS analysis, even without considering this expense, Nokia’s earnings still fell short of analysts' expectations by 9%.

Nokia stated that tariffs will have an impact of between €20 million and €30 million as a drag on profitability in the second quarter.

"We aren't exempt from the swiftly changing global trade environment; nonetheless, according to initial client responses, I think our markets ought to demonstrate considerable resilience," stated Justin Hotard, Nokia’s newly appointed CEO, who assumed leadership at the start of this month.

During a conference call, Hotard highlighted that Nokia’s current U.S. operations could lessen the effect of tariffs. "I would like to add that currently we operate five production sites within the U.S., including two from the upcoming Infinera acquisition along with our three existing ones," as stated in a FactSet transcript.

Nokia concluded its $2.3 billion deal purchase of Infinera in February.

This deal focuses on providing us step-by-step entry into the U.S., a rapidly expanding market, particularly when it comes to hyperscale clients who are fueling much of the growth in AI and data center construction," explained Hotard. He added that artificial intelligence is also prompting increased demand for connections among these data centers.

Nokia disclosed what they referred to as an extensive multi-year extension of a radio access network supply agreement with T-Mobile US.

JPMorgan analysts noted that there was speculation about Nokia potentially losing this contract, similar to what happened with AT&T.