Nokia expects sales and margin growth from key Networks unit in 2015

Nokia (NYSE:NOK) expects sales and profits in its core Networks business to continue to grow. The company is also anticipating higher sales from its mapping and patent licensing units.

Although some investors were disappointed with the company's margin guidance, Nokia's optimism about its growth prospects reveal how far the company has come in returning to financial health in the past few years after shedding tens of thousands of employees and selling its loss-making handset business to Microsoft (NASDAQ: MSFT).

Nokia, as part of its Capital Markets day event, said it expects Nokia Networks' net sales to grow slightly faster than the market over the long-term. The network gear unit currently makes up around 90 percent of Nokia's total sales. The company said it expects to "build on its current momentum while transforming to serve the operator of the future."

Additionally, Nokia now expects the Networks unit's long-term non-IFRS operating margin range to be 8 to 11 percent, up from a previous target of 5 to 10 percent.

In terms of its 2015 outlook specifically, Nokia expects net sales in the Networks business to grow on a year-on-year basis, though it did not say by how much.

Some investors were expecting a bit more from Nokia in terms of margin growth. "Nokia is being too modest on their margin guidance," Hannu Rauhala, an analyst at Pohjola Bank in Helsinki, told Bloomberg. "I was expecting 11 to 12 percent next year."

"Expectations for 2015 (margin) have been on the upper end of that range, so perhaps that guidance was a slight disappointment for the market," Inderes analyst Mikael Rautanen told Reuters, adding, "But it is good to remember that Nokia has been very conservative with its outlook lately."

Like rivals Ericsson (NASDAQ: ERIC), Huawei, Alcatel-Lucent (NYSE: ALU) and ZTE, Nokia has seen network gear become more commoditized and has tried to diversify its sales by offering higher-margin software and services to carriers. Nokia is also looking beyond carriers for non-traditional customers, as Ericsson has pledged to do in the years ahead.

Nokia CEO Rajeev Suri said growth in the mobile networks market will be "flattish" over the coming years, according to the Wall Street Journal. According to Mobile Word Live, Suri said at the investor event in London that there are "six primary competitors focus on wireless but only three have credible claim to global scale," referring to Nokia, Ericsson and Huawei.

In the U.S., Nokia, Alcatel-Lucent and Samsung are providing 8T8R radios for Sprint's (NYSE: S) tri-band Spark LTE service. Nokia is also helping T-Mobile US (NYSE:TMUS) enhance its LTE network and implement carrier aggregation. Nokia also recently won a $970 million contract to provide TD-LTE equipment to China Mobile.

Aside from Networks, Nokia is also working to grow its HERE mapping unit and its technology and patent licensing division. The company said for HERE it is going to go after automotive customers, grow in the enterprise segment and target Internet players, while improving profitability through increased efficiency. The company expects HERE's net sales to grow on a year-on-year basis in 2015 with margins of between 5 and 10 percent.

"HERE needs investments and Nokia has a decent balance sheet and investment capability to let HERE thrive," Suri said, according to the Journal.

Nokia expects its technology and patent licensing sales to grow next year, excluding money related to the expected resolution of its arbitration with Samsung. The company expects expenses at the unit to "increase meaningfully" year-over-year in 2015 thanks to higher investments in licensing activities, development of licensable technologies and other factors.

Nokia's main opportunity to return to consumer products is through licensing its brand, Suri said. "We're not looking at direct consumer entry in handsets, per se," he said, according to Bloomberg. "Brand licensing continues to be the operative word."

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article
- see this Mobile World Live article

Related Articles:
Nokia Networks sees N. American sales boom 58% in Q3 thanks to Sprint, T-Mobile
Nokia Networks establishes multi-stakeholder ETSI ISG for mobile edge computing
Nokia Networks signs $970M TD-LTE deal with China Mobile
Nokia Networks' Moiin on the pillars of 5G and the likelihood of a new air interface
T-Mobile will work with Nokia Networks to launch LTE carrier aggregation
Nokia lifts 2014 outlook for its networks business

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