Below are key drivers of Nokia's value that present opportunities for upside or downside to the current Trefis price estimate for Nokia:
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, making 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 since the completion of the merger, Nokia has become one of the biggest players in the telecom gear industry.
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 networks business, where EBITDA margins are around 14%. 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 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.
In 2015, Nokia announced that it had signed a strategic agreement with a newly formed Finland-based company, HMD to create Nokia-branded mobile phones and tablets for the next ten years. HMD was founded to provide a focused, independent home for a full range of Nokia-branded feature phones, smartphones, and tablets.
The move makes sense for 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.”
The IoT domain includes computing devices other than PCs, tablets, and smartphones. According to McKinsey, it is the networking of physical objects through 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. There is a lot of growth potential for network infrastructure players, in addition to semiconductor companies.