|Revenue||EUR 23.3 billion (2019)|
|Profit||EUR 460.2 million (2% net margin) (2019)|
|Competitors||Arista Networks, ZTE Corp, Motorola Solutions, Ubiquiti Inc.|
Nokia Company Overview:
Nokia is one of the world’s leading manufacturer of telecommunication infrastructure of mobile phone networks. The company was once a leading mobile phone maker, but now it focuses on professional services on networks, cloud-based software portfolios, and research & development. Nokia operates and has customers in some 120 countries. Nokia’s business is divided into three segments: Networks, Nokia Software, and Nokia Technologies, in which the Networks segment includes Mobile Networks, Global Services, Fixed Network, and IP/Optical Networks operations. The Networks segment generates about 80% of Nokia’s revenue, while the Software segment is responsible for more than 10% of revenue, and the Technologies segment generates the rest. Nokia has R&D centers in the largest countries in every geographic region it presents, including China, the U.S, Germany, France, and the U.K. We performed a SWOT Analysis to identify the company’s core strengths, weaknesses, opportunities, and threats.
NOKIA Strengths 2020:
- Experience as a past mobile phone maker helps Nokia advance in the telecom segment.
The company was the world leader in the mobile phone in the 90s and early 2000s, however, it products fell out of popularity when the iOS and Android-equipped smartphones outperformed Nokia’s Symbian software. At the moment, Nokia focuses on the architecture and 5G system-on-chip capabilities for its mobile radio network products, distributed cloud, and network slicing. It also won, by 2019, 62 commercial 5G deals and launched 18 commercial 5G networks in major markets. Its technologies include the one used in virtual mobile devices.
- Large budget for research & development.
Since 2017, after acquiring Alcatel-Lucent to show its serious intention of joining the telecom equipment market, its annual R&D budget has never been less than EUR 4 billion. Its innovation efforts are positively reflected in its earnings-per-share growth rate where Nokia ended its negative growth streak in 2019.
- As the 5G network rolls out, Nokia is on the path to more stable growth.
As sales of its new low-cost base station increase and 5G sales shift from China to other regions where Huawei has fewer advantages.
NOKIA Weaknesses 2020:
- Weak financial performance.
Nokia’s net income has been dragging around the 2% mark since 2016 and a negative free cash flow from 2017 to 2019. The company also has a negative Return on Asset and Return on Equity. To finance its operation amid an operating loss, Nokia raised more long-term debt in 2019, increasing its leverage.
- Inventory turnover is below the industry’s average, 4.91x vs. 6.38x, which indicates that Nokia might have a problem with sales.
Having more inventory on hand than needed also ties up cash and increases the risk of inventory impairment (obsolete).
- Nokia has struggled to launch a low-cost 5G radio base.
They have not managed to compete with rivals in a timely manner, which could hamper its market shares and narrow its operating margin.
NOKIA Opportunities 2020:
- Sell select product segments to raise cash and focus on its highest-growth areas.
Among the potential segments that could be sold without affecting Nokia’s wireless growth are fixed-access equipment and Optical business.
- Capitalize on accelerating 5G upgrade spending across the world after missing out on early growth in China.
Huawei is leading the 5G global market with 43.6% as of 2Q of 2020, followed by Ericsson and Nokia, with 18.3% and 12.2%, respectively. Huawei’s share is expected to diminish as the 5G upgrade in China decreases over time and the headwind from the U.S – China trade war begins to pick up.
- Keep a diversified product line across different segments to boost growth and spread out its income sources to prevent failure in one segment putting a significant impact on Nokia’s earnings.
The outlook for the company’s routing, optical, and software look good despite the pressure from competitors and pandemic-related supply constraints. Its router sales are forecasted to pick up once it expands into data-center routing. A rebound for optical sales is on the way once supply constraints ease off and orders begin to ship out.
NOKIA Threats 2020:
- Losing 5G Radio Access Network (RAN) market share at Verizon to Samsung due to earlier mistakes that led to the late launch of its low-cost 5G base station.
Verizon is one of the most important clients for Nokia, and any shares lost in this account could put a dent in the future growth outlook. Samsung recently announced the commercial version of a cloud-based RAN product, which seems to be the future trend of this market, and it would not come as a surprise if Verizon decides to shift its business to Samsung.
- Nokia’s revenue could lose up to 4%, according to a worst-case scenario analysis from IHS.
As the company is struggling to maintain its share in the 5G base-station market, while optical and IP routing sales might decline amid the pandemic. Competitions in the 5G market is ramping up as well, with Ericsson and Huawei are trying to reap more market shares from Nokia.
- Nokia’s profitability heavily relies on the high-margin technology business.
The segment only contributes 6% to revenue, however, it has a gross margin of 98% in 2019. In the three sub-segments that make up Technologies: patent, technology, brand licensing, the patent business contributes the most to Nokia Technologies’ revenue.
NOKIA SWOT Analysis Conclusion 2020:
- Once a leader in the mobile phone industry, Nokia chose to pursue a different business segment after its Symbian phones lost the market to iOS and Android devices. The company is now a significant player in the 5G equipment and technology providers.
- Although there have been hiccups along the way, Nokia is returning to its market leader position once again, fueled by past experience and new innovations.
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Butler, J. (2020). Nokia Research Report. Bloomberg Intelligence.
Nokia . (2020). Investor Presentation.