Nokia beat market expectations in its fourth quarter results though sales were down 5% year-on-year and new CEO Pekka Lundmark was clear that the company would not catch up entirely in 5G until 2022, repeating the warning that Nokia would make no profits this year on its mobile networks business.
Total fourth quarter revenue was €6.57bn ($7.85bn), and Nokia reported a net loss of €2.6bn ($3.12bn), though it blamed most of that on the derecognition of Finnish deferred tax assets that were booked during the quarter.
Compared to Ericsson’s strong performance, Nokia is clearly further behind in the turnaround cycle, and Lundmark was careful to manage expectations while giving the impression that the turnaround was, indeed, achievable in a 12-month period. He will be keen to shift the narrative away from last year’s speculation that Nokia would shortly be sold or broken up, and would be unable to claw back a strong 5G position alongside Ericsson.
For 2021 to be the firm’s 5G transition year is still very bad timing, of course, when many operators are starting large-scale deployment of 5G, or planning their migrations towards the next phase, based on 5G Standalone. Nokia is still reeling from problems with its 5G base station chips, which led to high costs and some performance teething troubles in late 2019. That forced it to transition to a brand new system-on-chip architecture, a process that is still incomplete, and to work hard to rebuild confidence among customers and prospects.
It may benefit from the start of operator deployments of 5G SA, which requires a 5G core network, since its cloud-based core has achieved far better competitive ratings than its RAN so far, and even in China, where it was left out of the most recent round of RAN awards, it gained core business. More operators than in the 4G era are determined to buy their 5G cores from different suppliers from their RAN.
Lundmark replaced Rajeev Suri, who fell on his sword in the aftermath of the 5G disaster, on September 1 last year, so these results relate to his first full quarter at the helm. He told the analyst call: “2021 is the year during which we believe that, for all relevant and significant parts, we will complete the catch-up in 5G.”
He believes Nokia has already caught up, or drawn ahead, in some areas, such as network slicing, software and private or enterprise networks. Nokia Software was a strong performer in the dark days of last year, and the Finnish vendor is clearly the frontrunner, among the major suppliers, in the private networks space.
“The enterprise market is expected to grow close to double digit over several years to come,” Lundmark said. “This is clearly one place where we want to find growth and we are finding it.” The vendor’s enterprise-related sales grew by 1% year-on-year in Q4 and by 11% for the full year 2020. Nokia said it won 79 new enterprise customers during Q4 and it currently has 260 private wireless customers as well as selling routers and other gear directly to enterprises.
In the main business, the new SoC-based RAN portfolio accounted for 43% of shipments in 2020, and is targeted to reach 70% by the end of this year and to replace the older architecture completely by the end of 2022. The 2020 figure beat Nokia’s own target of 35%.
Lundmark said: “We are approaching a situation where there is no need to talk about catch-up any more, but there is a lot of work still to do this year. But once we get through this year, I believe we will get there.”
The new CEO has initiated a major reorganization, but these results still related to the old structure. The Networks division saw its revenue fall by 7% year-on-year in the fourth quarter, to $6.03bn, which Nokia blamed on lower performance in mobile access and optical networks. In RAN, it is struggling with a fall in sales of legacy RAN and price erosion in all generations of RAN technology, especially in North America, which is Nokia’s largest and, traditionally, highest margin market.
Total Nokia sales in that region still increased by 11% year-on-year, while they were flat in Europe, its second largest market, and fell everywhere else – by 10% in Greater China, 38% in Latin America, 20% in Asia-Pacific and 10% in Middle East/Africa.
Although the Software group has been a star, its revenue was down 1% year-on-year to $1.03bn, while revenue from its smaller Technologies division – which handles licensing and patents – was down 2% to $457m.
Nokia’s latest guidance is for 2021 sales of between €20.6bn ($24.7bn) and €21.8bn ($26.1bn), down from about €21.9bn ($26.2bn) last year. That represented a 6% fall from 2019 (4%, on a constant-currency basis), mainly attributed to the 5G problems and wider mobile sales downturn, including the failure to win Chinese RAN deals.
Nokia is predicting an operating margin of between 7% and 10% this year, compared to 9.7% at the end of 2020, when Nokia had completed its €500m ($600m) cost-cutting program.