Is Nokia Leveraging Its R&D Investments Effectively?

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Nokia’s investments in research and development (R&D) are aimed at developing a network ecosystem operable with the prevailing and future telecom technologies, which can help it stay at par with, or better than, the competition. These investments are also aimed at building up the company’s intellectual property portfolio in the form of patented technologies, that are licensed to other companies for a fee. In addition, part of that investment goes toward developing effective network wireless infrastructure installation techniques, so as to minimize the cost of sales and maximize gross profits. Considering this, the efficiency of Nokia’s R&D can be gauged by gross profit dollars (since it incorporates cost of sales) generated per dollar spent on R&D. The chart below indicates that the company’s R&D efficiency is indeed improving and we expect it to continue this way in the near term, though at a slower pace.

Nokia R&D Gross profit

Here are the factors behind Nokia’s improving R&D efficiency.

  • Nokia has been striving hard to optimize its R&D structure to improve productivity, efficiency, and cost intensity. The company saw notable improvements on this front in 2014 and 2015, and it expects to sustain this going forward.
  • Nokia’s merger with Alcatel-Lucent provides it access to the latter’s intellectual property, which the Finnish company can leverage to increase its top line relative to R&D costs.
  • Nokia’s re-entry into, and Microsoft’s exit from, the smartphone domain provides the Finnish company the liberty to license its entire existing patent portfolio (the company had kept 90% of its patents exclusive for its own devices). This should give Nokia enough leverage to grow its revenues faster than its R&D costs.
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Nokia Gross profit per dollar

Have more questions about Nokia? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Nokia
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