How Does Nokia Make Money?

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Nokia (NYSE: NOK) develops network equipment, software, services, and licensing globally. It provides mobile telephony, IoT, and digital health services. View our interactive dashboard analysis Nokia Revenues: How Does Nokia Make Money?

What Are Nokia’s Key Business Segments?

1. Nokia Networks: This generates revenues from a portfolio of products and services that encompass mobile and fixed network access infrastructure, IP routing and optical networks, mobile and converged core networks, as well as software platforms and applications.

2. Nokia Licensing: This segment is focused on licensing Nokia intellectual property, including patents, technologies, and the Nokia brand.

Who Are its Clients?

1. Nokia primarily sells its hardware to wireless carriers.

2. The company licenses its patents to handset and chipset vendors.

What Are The Alternatives?

Networks Equipment providers/ Mobile Network providers: Ericsson, Huawei

IP networking and security providers: Juniper Networks, Cisco

Optical Networks & Fixed Access providers: Ciena, Adtran, Calix

Network analytic service and IoT and systems integration: Ericsson, Netcracker, HPE, IBM

Independent Software Vendors: Amdocs, Oracle, Netcracker

What Is The Basis of Competition?

Competition is based on selling high-end networking gear and software to telecommunications companies and internet service providers.

Revenue growth of about €300 million over two years to be driven by the contribution of about €140 million from (1) Networks division, and about €75 from (2) Licensing divisions

  • Nokia has lost around €1 billion to its revenue over the last two years, largely due to declines in the Networks segment.
  • However, we expect the Network revenues to grow slightly and add about €140 million in revenue over the next two years

(A) Revenue from Networks to increase about €140 million in the next two years, with its share of Total Revenue expected to be about 93% by 2020

  • Overall, Networks revenues declined from €23 billion in 2016 to €21.1 billion in 2018, driven by weakness in the mobile and fixed access space partially offset by growth in IP routing.
  • We expect revenue to grow slightly in the next two years, to about $21.3 billion in 2020, driven by the adoption of 5G technology. Nokia has 50 commercial 5G wins as of November 2019 and it’s likely that this will be the biggest growth driver.
  • Networks sales contributed 93% of total revenue in 2018. It is expected to remain at similar levels by 2020.

(B) Revenue from Licensing to grow slightly in the next two years, with its share of Total Revenue expected to be about 7% by 2020

  • Segment revenue grew from €1 billion in 2016 to €1.5 billion in 2018, driven by revenues from patent royalties. These revenues are becoming more meaningful to the company due to their higher margins.
  • We expect revenue to grow slightly in the next two years by 2020. Nokia has expanded its licensing operations to markets including Chinese mobile OEMs, which have been growing their global market share, and customers in the automotive sector.
  • Licensing contributed 7% of total revenue in 2018. This share is expected to remain at similar levels by 2020.

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