On the neighboring forum, I explained what I think we know about next year’s situation and what it is not worth starting to guess about.
rkurppa said:
“I expect revenue to improve significantly in 2027 and beyond, with margins also having considerable room to improve as volumes increase, restructuring costs fall and the cost base is reset.”
There is nothing wrong with your Q2 analysis, but with that same sentence above, one could end up with an €8 or €15 target price depending on how one interprets the words “significantly” and “considerable room”.
I would like to see more concrete group-level numbers in these analyses for the coming years: operating profit / revenue, etc. Reaching €15-20 requires stretching the valuation multiples, and stretching requires growth. 15%? 20%? 25% per year?
My reply:
There are so many things that affect Nokia’s earnings that I won’t start guessing, for example, regarding operating profit. That is why in my Q2 analysis, I stuck to facts that are already known. We know that the addressable market for AI and cloud services relevant to Nokia is growing by 27% per year, but it is impossible to know how much optical sales will grow next year with the new San José factory. After the middle of next year, Nokia will also have a new DSP product family, which might have time to impact sales. The growth of IP networks is also a mystery in terms of scale, even though we know that order dynamics have improved significantly since Q2. Regarding orders, we also know that over the last four quarters, Nokia has received approximately €5.4 billion in AI and cloud orders. Hotard has also previously stated that it takes about 12-18 months from order to delivery in optical, and slightly less in IP networks. Regarding the €2.8 billion in Q2 orders, we also know that half of them will be delivered within the next 12 months. In other words, the gradually growing orders will start to show in sales—perhaps partially already in Q4, for which a strong performance has been promised—but mainly starting from next year.
The negative profit impact of the current cost-cutting programs is €800 million this year and perhaps €100–200 million next year (leftovers from the China and Infinera programs). Therefore, unless new programs are introduced, the reported earnings in 2027 will be subject to an estimated €600–700 million fewer cost charges compared to 2026.
I also calculated earlier what the cost impact of the savings will be heading into next year: Regarding the Infinera program, it was initially stated that the savings would be €200 million per year, with €100 million by the end of 2026. Regarding the China program, a saving of €200 million is also being targeted. Assuming, without certain knowledge, that €200 million in savings is still to come from the 2023–2026 program, €67 million (one-third) from the Infinera program, and €150 million (three-quarters) from the China program, cost efficiency could increase by approx. €400 million next year compared to this year’s level. These are, of course, gross savings, so the net effect may be smaller if Nokia decides to increase spending in areas it sees as important, such as R&D.
In summary, sales are likely to grow next year, there will be fewer cost cuts unless new programs are announced, and the programs will also increase Nokia’s efficiency. With this, 2027 should be clearly stronger in terms of sales and margins, while at the same time, the gap between comparable and reported profit should shrink significantly.