Here Are Nokia’s Key Growth Drivers

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Nokia‘s(NYSE:NOK)  key growth drivers include:  1) establishing a strong presence in China; achieving growth in its licensing division; and, 3) exploiting the trend of Internet of Things (IoT). China is a crucial market from Nokia’s top line perspective and its ability to cater to the 4G demand in this region and the recent tie up with China Mobile could be key for Nokia’s growth. The company has a huge portfolio of patents which was not monetized before the sale of its smartphone business. This can now be licensed out to other companies, thus driving growth of its licensing division. Nokia’s products based on the NB-LTE technology have a competitive advantage in the IoT domain and this provides an opportunity to improve its networks wireless market share, thus driving future growth.

See our complete analysis for Nokia stock here

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Growth in China

Nokia’s sales in Greater China increased by 27% in Q3 2015, while they were flat or significantly down in other markets.  In China, 4G penetration is around 20%, compared to 40% in the U.S. at the end of 2014. [1] Although the mobile user growth rate in China has slowed, there is still a huge potential for growth in the 4G market. In October 2015, Nokia entered into a deal with China Mobile to be the supplier for the latter’s  network infrastructure  solutions and support, in a partnership valued at over $ 1 billion. [2]  Nokia will also work with China Mobile in expanding its Internet of Things (IoT) services including smart cars, healthcare, and a host of other solutions. This large partnership and potential for 4G penetration should be key for the company’s growth in China in future.

Licensing Division

Nokia’s licensing division accounts for more than 25% of its valuation according to our estimates.  From 2010 to 2014, the segment’s revenues grew steadily from EUR 100 million to EUR 560 million. Nokia has approximately 4,000 patent families across various wireless standards including 3G and 4G LTE, as well as device design, which it licenses to other vendors for recurring income. After divesting its smartphone business, Nokia faces less danger of countersuits and thus a greater bargaining power in setting patent license terms going forward. The company is looking to re-enter the smartphone business through a brand licensing model where it will provide design and technology through patent licenses. We believe that with a huge patent portfolio which was previously not monetized and kept exclusively for the smartphone business, there could be a huge potential for growth in the company’s licensing division.

Internet Of Things (IoT)

The emergence of Internet of Things (IoT) domain is likely to provide the next wave of growth for Nokia. With the expansion of IoT, wireless communications across everyday devices should increase considerably, creating demand for technologically advanced equipment capable of handling large data flow. Nokia announced that it is working with Ericsson and Intel to develop and launch products compatible with Narrow-Band Long-Term Evolution (NB-LTE) technology. The Finnish company considers NB-LTE as an ideal wireless connectivity technology for the IoT domain, because of its power and cost-effectiveness. It believes that products compatible with NB-LTE will improve user experience by providing them with improved connectivity at lower costs. NB-LTE is being regarded as a direct challenge to Huawei’s earlier launched and already popular Narrow-Band Cellular IoT (NB-CIoT). With a notable competitive advantage over NB-CIoT in terms of deployment, NB-LTE provides Nokia an opportunity to improve its networks wireless market share.

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Notes:
  1. venturebeat.com []
  2. Nokia Press Release []