Nokia (NOK) Last Update 6/6/22
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TREFIS Analysis

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Potential upside & downside to trefis price

Nokia Company


  1. Licensing constitutes 45% of the Trefis price estimate for Nokia's stock.
  2. Networks constitute 30% of the Trefis price estimate for Nokia's stock.


  1. Latest Earnings: Q1 2022 Results
Nokia delivered a steady performance for Q1 2022. Nokia's total revenue rose to €5.35 billion from €5.08 billion. Further, gross margins rose from 37.9% to 40.6% but operating margins dropped from 8.5% to 6.6%, as R&D expenses surged. Due to this, net profits dropped to €219 million, from €263 million over this period.


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 declined from about 16% in 2015 to about 11% in 2020, driven by higher competition from Chinese players such as Huawei and ZTE, which forced Nokia to reduce its prices. However, margins surged in 2021 to 14.2%, and we expect the metric to maintain this level till the end of our review period, driven by higher sales of 5G equipment and solutions. If the metric rises to about 16% in the same period, it could bolster our price estimate by about 10%. On the other hand, if margins drop to around 10%, our price estimate could decline by 20%.


  • Licensing Revenues: Nokia's licensing revenues have grown rapidly from EUR 100 million in 2010, to EUR 1.2 billion in 2021, with the biggest jump coming in 2017. The number grew to about EUR 1.2 billion in 2017, 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 EUR 2 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.


    Finland-based Nokia was once the largest mobile phone manufacturer globally. However, the handset business was officially transferred to Microsoft in 2014, which at that point made Networks its most valuable segment. However, now with the licensing re-entry into the smartphone business, Licensing is the most important segment for the company. In 2015, Nokia announced its merger with Alcatel-Lucent worth $16.6 billion, and with the recent completion of the merger, Nokia has become one of the biggest players in the telecom gear industry. Nokia sold off its third segment, HERE maps unit, to German carmakers for $3 billion in 2015.


    Sizeable profits from licensing business

    The licensing division of Nokia contributes just 7% 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 89% as opposed to the networks business, where EBITDA margins are around 12%. Also, with the recent licensing deal for smartphones that would allow Nokia to license a huge portion of its patent portfolio, the licensing business appears to have better growth potential.


    Nokia's Increasing Focus On the U.S. Market

    Nokia Networks has increased its focus on more lucrative contracts in regions such as the U.S., where Chinese manufacturers such as Huawei and ZTE have been blacklisted amid security concerns. North America has historically accounted for less than 10% of Nokia's revenues, but the mix is gradually improving with several network expansion/upgrade contract wins. As of 2019, North America accounted for about 30% of Nokia's total revenue, driven partly by the Alcatel deal.

    Nokia Alcatel-Lucent Merger

    In 2015, Nokia announced the $16.6 billion merger with Alcatel-Lucent, and the deal has now closed. By Merging with ALU, the Finnish company has been able to expand in the domain of optical transmission and IP routers and switches, which are important components for building a network. A comprehensive product line with advanced research capabilities for the development of future technologies such as SDN and cloud computing is likely to give Nokia an edge over Ericsson, which currently only offers wireless networking equipment and services.
    Also, the deal offers certain geographical benefits to Nokia, positioning it strongly in the U.S., China, and Europe. Alcatel-Lucent has long-standing contracts with Verizon and AT&T in the U.S., and it even holds the second-largest share in the global service provider router market after Cisco, and both these factors bode well for Nokia.

    Re-entry into the smartphone market

    In 2015, Nokia announced that it had signed a strategic agreement with a newly formed Finland-based company called HMD to create Nokia-branded mobile phones and tablets for the next ten years. HMD has been founded to provide a focused, independent home for a full range of Nokia branded feature phones, smartphones, and tablets. Nokia had sold its mobile phone business to Microsoft in 2014, and HMD will now acquire the right to use the Nokia brand on feature phones and certain related design rights from Microsoft.
    The move makes sense due to two reasons: 1) the global growth in smartphone sales is strong; and, 2) strong customer response to its N1 tablet might have encouraged Nokia to reconsider its opportunities in the market. However, realizing that competition from leading smartphone vendors Apple and Samsung and low-cost manufacturers will not allow either easy entry or growth in the market, Nokia is letting its licensing partner do all the “heavy lifting.”

    5G Can Provide A Tailwind

    Operators across the world have started to outline plans for their 5G upgrades, with U.S. carriers commencing commercial deployments of the technology in 2018. For instance, AT&T and Verizon have deployed 5G mmWave services in over 30 markets by the end of 2019, while Verizon is bringing fixed 5G to homes in multiple U.S. cities. Other regions, including South Korea, China, Japan, and the Middle East, commenced their build-outs in 2019. Scoring early wins is crucial for equipment providers, as the technology is expected to have a relatively long life cycle, and Nokia has been executing fairly well on this front. For instance, as of Q1 2020, the company noted that it had 70 commercial deals and 21 live networks underway. Moreover, being a European company, it could also have a leg up over Chinese players such as Huawei and ZTE, which face regulatory hurdles in Western markets amid fears that they could give backdoor access to the Chinese government.

    Internet Of Things Domain Warming Up

    The IoT domain includes computing devices other than PCs, tablets, and smartphones. According to McKinsey, it is the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects. The main factors that have contributed to the growing interconnectedness of objects are: 1) The emergence of the cloud platform, which enables the storage of large amounts of data to be transmitted and received via wired or wireless devices, and 2) The declining cost of manufacturing semiconductors, which makes their installation on frequently used unconnected devices economically feasible. Cisco estimates that the IoT market will be worth $19 trillion over the next decade, representing a $1.7 trillion market for service providers. McKinsey estimates that the impact of IoT on the global economy could be as high as $6.2 trillion by 2025. Clearly, there is a lot of growth potential for network infrastructure players, in addition to semiconductor companies.