Nokia’s (NYSE: NOK) Networks segment, which includes Mobile Networks, Global Services, Fixed Networks, and IP/Optical Networks operating units, has witnessed minimal revenue growth over recent years, with the division’s revenues remaining relatively flat at €23.3 billion over 2017-2019 and we expect these revenues to shrink below €23 billion in 2020. On the other hand, Nokia’s Licensing business, which is the company’s most profitable segment, has seen its revenues contract from €1.7 billion in 2017 to around €1.5 billion in 2019, and we expect the division’s revenues to remain flat at current levels in 2020. As a result, Nokia’s revenues are expected to decrease by 1.7% in FY 2020, led by a drop across all operating segments. Trefis highlights trends in Nokia’s Revenues over the years, along with our expectations for FY 20-21 in an interactive dashboard, key elements of which are discussed below.
Highlights From Recent Earnings
- Nokia’s Q1 2020 results reflected the resilience of Nokia’s business. Despite a 2% decline in the company’s revenues to €4.9 billion, Nokia’s profitability received a boost led by lower operating expenses and improved gross margins across Networks, Nokia Software, and Nokia Technologies business.
- Ironically, the coronavirus outbreak had a positive impact on the company’s business as demand for network capacity surged.
- However, the company expects demand to decline in the coming quarters as its customers are likely to delay their spending plans. As a result, Nokia downgraded its outlook for full-year 2020, expecting adjusted EPS to be in the range of €0.18 to €0.28, as compared to the previous range of €0.20 to €0.30.
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Company Overview and General Reference
- Nokia develops network equipment, software, services, and licensing globally and also provides mobile telephony, IoT, and digital health services.
- Nokia’s Networks segment is the largest segment – generating more than 90% of the company’s revenues while accounting for less than 50% of the company’s adjusted profits.
Overview of Company Revenues
Nokia reported €23.3 billion in total revenues for full-year 2019. This includes two operating segments:
- Networks: €21.8 billion in FY2019 (93% of total revenues). This segment 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.
- Licensing: €1.5 billion (7% of total revenues). This segment is focused on licensing Nokia intellectual property, including patents, technologies, and the Nokia.
A Detailed Look At Nokia’s segment performance and revenue change over the years:
(1) Networks Division Will Continue To Benefit From 5G Rollout, But Lower Spending Is Likely To Weigh On The Division’s Revenues
- Overall, Networks revenues increased from €21.5 billion in 2017 to €21.8 billion in 2018, driven a combination of higher the deployment of 5G networks and growth in IP routing, partially offset by weakness in the mobile and fixed access.
- We expect revenue growth to be negative in the next two years, and the division’s revenues are expected to fall to about €21.3 billion in 2021, driven by the adoption of 5G technology. Nokia has 70 commercial 5G wins as of April 2020, and this will likely be the biggest growth driver. However, the outbreak of the virus is likely to adversely impact the demand for the company’s products as major companies delay their spending on upgrading technology.
- Moreover, intense competition from Chinese companies like Huawei and ZTE, which offer products at competitive prices, is likely to weigh on Nokia’s revenues as more companies transition toward cost-effective products.
- Networks sales contributed 93% of total revenue in 2019, and it is expected to remain at similar levels by 2021.
- We also highlight how Nokia’s revenue has trended as compared to its peers Ericsson and Cisco in our interactive dashboard.
(2) Revenue for Licensing Services is expected to remain flat at €1.5 billion over 2020-2021, with its share of Total Revenue remaining stable at 7%
- Additional details about how revenues for Nokia’s Licensing Services have changed over recent years are available in our interactive dashboard.
Interestingly, while Nokia’s revenues are expected to fall this year, its competitor Ericsson’s Revenues are slated to trend higher for the year.