Though Nokia (NOK, Financial)'s net sales declined 21% on a year-on-year basis in the final quarter of 2013, the company’s ongoing divisions reported positive profits. Nokia operates in many segments. The Devices and Services segment offers feature mobile phones and smartphones. Nokia has a segment that provides infrastructural solutions to the mobile broadband market. The HERE segment develops products and services for Nokia’s feature phones and smartphones. Nokia is headquartered in Espoo, Finland, and was founded in 1865. It recently sold its Devices and Services segment to Microsoft (MSFT, Financial).
Financial Information
Nokia operates as a mobile communication company worldwide. Its ongoing divisions showed positive responses to Nokia’s strategy. In the fourth quarter, Nokia Solutions and Networks reported $4.37 billion net sales and $337 million in operating profits. For the full-year 2013, the segment posted $538 million in operating profits, compared to a $1.1 billion in operating losses in 2012. HERE, Nokia’s mapping division, earned $352 million in net sales and $25 million in operating profits. Nokia’s Advanced Technologies made $90 million in operating profits on $168 million in net sales. Nokia’s phone business made $3.61 billion in net sales and posted an operating loss of $274 million. The loss for the full year is $818 million, about a third of the $2.04 billion loss in 2012.
Positive Outlook
In the first quarter of 2014, the company expects its operating margin to be in the range of 5%. The gross margin will be impacted by lower seasonal net sales as well as lower margins during initial phases of several deployments. However, the company expects its Advanced Technologies annualized net sales run rate to increase to around $833 million in 2014 after Microsoft becomes a licensee. This compares to Advanced Technologies' current annualized net sales run rates of around $694 million.
New Initiatives
Nokia took a position that not only would TD-LTE be critical for success in China, but that it would also become a global technology. The company calculated that 50% or more of the spectrum available to operators globally will be used for it. As a result, Nokia has taken a leading position in the sector. Given its wins with several telecom operators, the decision will serve the company well going forward.
Nokia also recorded notable innovations in developing Telco cloud technology and software-defined networks. This allowed the company to win deals and be selected by a major operator as a partner of choice for core virtualization projects.
Nokia announced that Samsung (SSNLF, Financial) had extended its patent license agreement with Nokia for five years. As part of this, Samsung will pay an additional compensation to Nokia for the period commencing from Jan. 1. This is an example of the excellent execution of Nokia’s Global Services segment. The division has achieved a third consecutive quarter of double-digit contribution margins. It will continue to add value that Nokia’s customers will pay for to ensure a future profitable growth for the company.
Head of Head
Nokia faces the stiff rivalry of Samsung, Apple (AAPL, Financial), and other companies. But it has a diversification advantage, as it provides products and services for a wide range of customers. During recent years, Nokia has achieved its greatest success on the low-and-medium end mobile phone market. Nokia has eliminated some of its rivals in regions like South America, Africa and large parts of Asia . Some analysts say Apple has been very successful in the regions that have experienced the current financial recession. However, Nokia has focused on regions that are witnessing financial growth.
International Expansion
Nokia is a global company. The company sells its products to mobile network operators, distributors, independent retailers, corporate customers, and consumers worldwide. As of 2012, Nokia employs 101,982 people across 120 countries and conducts sales in more than 150 countries. Nokia operates a total of seven manufacturing facilities. They are located in Brazil, China, Hungary, India, Mexico and South Korea
China at a Glance
Nokia enjoyed increased LTE sales in greater China in 2013. Its Nokia Solutions Networks segment won contracts for LTE deployments with China Mobile, China Telecommunications and Chunghwa Telecom in Taiwan. Nokia is on the track to become the leading foreign vendor in the country. In addition, the Finnish phone-maker signed a procurement deal with 360Buy, China’s second-largest e-commerce site. 360Buy purchased $318 million worth of Nokia phones in 2013.
Other Asian and African Countries
Apart from China, Nokia has won contracts for LTE deployments with Telkomsel in Indonesia. Its Lumia 1020, a device that has won heaps of praise from the media and consumers, also got into the country. Indonesia has over 200 million people in it, so it provides a potentially big market for Nokia products. Nokia also won an LTE deployment contract with Vodacom in Tanzania.
On a Concluding Note
Nokia is diversified across the major segments in the technology sector. It is therefore well-positioned to meet changes in the industry. Another advantage is that it has continued to innovate and invest in value-added businesses. This could bring a shareholder value in the future. In conclusion, Nokia has room for its growth. The company should be watched for possible returns in the next few years.
