Nokia shifts to 'accelerate' phase of turnaround

Nokia is gearing up to hit the gas pedal in the next phase of its turnaround efforts, after a year focused on stabilizing resulted in a faster than expected “reset” of the business.

Progress on the vendor’s turnaround efforts come as Nokia reported declines in its large mobile network business and tepid growth in the enterprise space.

Alongside fourth quarter and full-year earnings, Nokia introduced new long-term targets based on its quicker than expected execution on strategy.

“Our long-term target is to grow faster than the market and to achieve a comparable operating margin of at least 14%,” said Nokia CEO and President Pekka Lundmark, who took the helm in 2020. “The pace of delivery will depend on both the market environment and decisions we may make on R&D investments to secure our long-term competitiveness and sustainable profitability.”

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Missteps on 5G led to struggles for Nokia in recent years, including market share loss in North America where Nokia was bypassed by Verizon in 2020 when the carrier awarded large 5G deal to Samsung.

Lundmark last year outlined a three-pronged strategy that included reset, accelerate and scale phases. As part of its turnaround plan, he’s emphasized heavier investment in technology R&D while working to lower costs.

“Now I'm pleased to confirm that we have completed our reset phase,” he said during Thursday’s earnings presentation. “So with the reset now behind us, it's time to accelerate.”

Nokia’s comparable operating margin declined in Q4 to 14.2% but expanded for the full year at 12.5%. For 2022 the Finnish vendor is targeting a comparable operating margin of 11-13.5%. Lundmark also touted free cash flow of EUR 400 million in Q4 and EUR 2.4 billion for the full year. Its top priority for capital allocation is investing in R&D, according to CFO Marco Wirén.

Nokia’s board proposed reinstating a dividend, which was suspended since 2019, of EUR 0.08 cents per share for 2021. It’s also initiating a share buyback program of EUR 600 million over two years.

Mobile networks lag as Nokia aims to gain share

While Nokia saw strong performance in its fixed network business in Q4, its significant mobile networks unit continued to lag.

Overall Nokia’s net sales were down 5% year over year in Q4 to EUR 6.4 billion, as a 16% decline in mobile network sales to EUR2.76 billion offset more than 10% growth in the network infrastructure segment. For the full year net sales grew by 3% to EUR 22.2 billion.

Nokia is guiding for net sales between EUR 22.6-23.8 billion in 2022.

For 2021 mobile network net sales were down 5% to EUR 9.7 billion, which Nokia said was expected mainly because of those earlier customer decisions in North America.

Despite the 5% decline, Lundmark emphasized that gross margin improved and comparable operating margin was stable, saying “that’s really strong execution from mobile networks.”

With greater investments in R&D, the company can now largely say “that we have closed the gap with the competition in 5G,” he continued.  

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Nokia now wants to turn attention to increasing its RAN market share, which stabilized and stood around 26%, excluding China.

“I think we have every possibility to do that because we have so much stronger technology position now compared to where we were a year ago,” Lundmark said, without disclosing specific targets.

In 2021 Nokia launched new generations of its AirScale products, including massive MIMO radio and  baseband units.

As for increasing market share, Lundmark cited potential in all markets but said he didn’t want to highlight particular regions for potentially highest share gains. However, he did note Latin America is still in very early 5G stages, while India has yet to start.

Enterprise disappoints, but ambition remains strong

One area that Nokia took an early interest in and has been working to expand is the enterprise space, which disappointed in 2021.

The vendor doesn’t have a specific enterprise unit, with results spread across different business groups, but tracks the segment separately as it represents a key focus.

The bad news, according to Lundmark, was that 1% enterprise sales growth for 2021 didn’t meet expectations. The good news, Nokia saw “extremely strong order intake,” he said, particularly in the second half of the year, setting the stage for 2022.

“We have a very strong ambition to grow beyond our traditional customer base of service providers. And we do believe that enterprise business offers significant growth opportunities going forward,” the chief executive said.

Competitor Ericsson emphasized a more focused push on the enterprise opportunity during its own latest earnings results, bolstered by a planned $6.2 billion acquisition of Vonage (which is still pending) and completed purchase of Cradlepoint.

RELATED: Ericsson posts positive Q4, gears up for enterprise play

Private wireless is another area Nokia’s pursued strongly (with 420 private wireless customers), and Lundmark emphasized two subsegments: wide area networks for sectors like transportation and utilities; and campus networks, which he sees as a fast-growing segment, citing 14 million industrial campuses globally.

“A significant part of them will one way or another invest in new generation of networking in the coming years,” he said, adding that Nokia plans to “double down” on campus wireless investments including increasing R&D.

On the enterprise front Nokia also wants to up its engagement with webscalers, which Lundmark views as key extremely important partners.

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In order to go to market to reach the large number of industrial campuses, he stressed that partners are key, both system integration and with cloud service providers. 

“From a cost point of view, it would be a hopeless case to try to scale your own sales force to reach 14 million” campuses, and on the product side it's key “to make sure that your product is as scalable as packageable as possible,” he said, playing into the shift to offer platforms as-a-service.

“And that's why the general development towards APIs and creating a platform for developers and offering the whole thing as a service as the business is evolving to, that's really, really important,” he said.