VALUATION HIGHLIGHTS

1. Networks constitute 52% of the Trefis price estimate for Nokia's stock.
2. Licensing constitutes 41% of the Trefis price estimate for Nokia's stock.

WHAT HAS CHANGED?

1. Latest Earnings: Q4 FY 2023 Results

Nokia posted a weaker-than-expected set of Q4 2023 results amid weak demand for networking products in markets such as the U.S. as higher interest rates and a weak macro environment weigh on spending by wireless carriers. Earnings came in at $0.11 per share, missing estimates, while revenue declined 23% year-over-year to $6.19 billion.

2. Higher reliance on emerging markets

Nokia has seen its geographic mix of sales change a bit in recent quarters. For example, customers in the United States have scaled back on spending on 5G equipment as they work through inventory that they built over the last year. At the same time, Nokia's sales to India have soared, as 5G deployments gather pace in the country.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Nokia's value that present opportunities for upside or downside to the current Trefis price estimate for Nokia:

Nokia Networks

• Networks EBITDA Margin:
  Networks' Wireless EBITDA margins improved from 10% in 2018 to about 11% in 2020 and surged to about 14% in 2021. However, margins dropped back to 9.6% in FY 2022, and we expect the metric to improve slightly through the end of our review period, driven by higher sales of 5G equipment and solutions. If the metric rises to about 15% in the same period, it could bolster our price estimate by about 20%. On the other hand, if margins drop to around 7%, our price estimate could decline by 20%.

Licensing

• Licensing Revenues: Nokia's licensing revenues have grown relatively quickly. The number stood at about Euro 1.6 billion in 2022, up from Euro 1.4 billion in 2020, driven partly by new licensing agreements and the settlement with Apple. We expect revenues to grow in the long run, driven by Nokia's sizeable patent portfolio and its licensing re-entry into the smartphone segment. However, there could be a significant upside to our price estimate if Nokia manages to leverage its robust patent portfolio more efficiently. If Nokia manages to increase its licensing revenue to Euro 2.5 billion in the long run, there could be an upside of more than 20% to our price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Nokia at the top of the page.

BUSINESS SUMMARY

Finland-based Nokia sells mobile, fixed, and cloud networking solutions globally. The company sells products and solutions for telecommunications service providers, enterprises, and governments worldwide. The company also licenses its intellectual property, including patents and technologies in areas such as wireless communications, and telecommunications infrastructure.

SOURCES OF VALUE

Sizeable profits from licensing business

The licensing division of Nokia contributes just 10% to the company's revenues but still is the most valuable segment as per our estimates. This can be attributed to the fact that this business is extremely profitable, given its nature, having EBITDA margins in the range of 85% as opposed to the network business, where EBITDA margins are under 14%.