Nokia’s Q4 Results To Be Driven By Licensing Revenues, Cost Controls

by Trefis Team
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Nokia (NYSE:NOK) is scheduled to publish its Q4 2017 results on February 1. Below we take a look at some of the trends we will be watching when the company reports results. We have created an interactive dashboard that details the company’s expected full-year 2017 performance. You can modify segment revenues and margins to see how it impacts the company’s earnings.

Trefis has a $6 price estimate for Nokia, which is about 20% ahead of the current market price.

See our complete analysis for Nokia

Networks Business Will Continue To Face Pressure

Nokia’s networking business could continue to face headwinds, amid muted capital expenditures by wireless carriers, who have largely built out their 4G LTE networks, with their 5G related investments only expected to kick in by the end of this decade. During Q3, the company’s network equipment sales declined by about 9% year-over-year, and the trend could continue over Q4 as well. The company projected that its primary addressable market for the networks business would contract by about 4% to 5% in 2017 on a constant currency basis, with the market declining by about 2% to 5% in full-year 2018 as well. Considering the market headwinds, Nokia is focusing on cutting costs to bolster its margins. The company is targeting total annual cost savings of roughly EUR 1.2 billion ($1.49 billion) by 2018, following its acquisition of Alcatel Lucent.

Licensing Revenues In Focus

Although patent royalties have accounted for a small portion of Nokia’s overall revenues historically, they are becoming more important to the company at a time when the wireless infrastructure market is going through a downturn. During Q3 2017, licensing revenues grew by about 37% year-over-year to 483 million Euros ($570 million). IP licensing revenues have high margins, and Nokia has also been steadily increasing its list of licensees. The company has struck deals with handset makers including Apple, Samsung, LG, and Xiaomi. In December, Nokia signed a multi-year smartphone patent licensing agreement with Huawei, the third largest smartphone vendor by volumes. Although Nokia did not break down the financial terms of the deal, it said that revenues from the agreement could begin to be recognized from as early as Q4 2017.

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