Key Takeaways From Nokia’s Q3 Results

Nokia (NYSE:NOK) published its Q3 results on Thursday, reporting weaker than expected sales in its core networks business, although its overall operating profits rose on account of some one-time licensing revenues. In this note, we take a look at some of the factors that impacted Nokia’s results and what could lie ahead for the company.

Trefis has a $6 price estimate for Nokia, which is in line with the current market price.

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Network Business Could Remain Challenging In The Near Term

Nokia’s network sales declined by about 9% year-over-year in Q3 to about 4.8 billion euros (around $5.7 billion) with a bulk of the decline coming from its Ultra-Broadband Networks division. Operating profits for the networking unit also declined by about 23% year-over-year to 334 million euros (about $395 million). The broader radio access network market has seen declines due to muted capital expenditures by wireless carriers, who have largely built out their 4G LTE networks, and with 5G related investments only expected to kick in by the end of this decade. There are other factors that could impact the company in the near-to-medium term, including intense competition in the Chinese market and potential network operator consolidation in markets such as the United States and India. Nokia expects its primary addressable market for the networks business to contract by about 4% to 5% this year on a constant currency basis. The company also expects the market to decline by about 2% to 5% in full-year 2018 on a constant currency basis.

Licencing Business Provides A Boost To Profitability

Nokia Technologies saw its revenues grow by about 37% year-over-year to 483 million euros ($570 million). A bulk of the increase came from a one-off payment of 180 million euros ($212 million) from the settlement of a patent dispute with LG Electronics. Operating profits also surged by 73% to 390 million euros ($460 million). Although the technology business has accounted for only a small portion of Nokia’s overall revenues historically, IP licensing revenues have very high margins (gross margins stood at about 98% in Q3), making them important to the company at a time when the broader wireless infrastructure market is going through a downturn (related: How Is Nokia’s Licensing Business Faring?).

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