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Nokia braces for challenging 2021, pins strategy on 5G leadership

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Nokia has reiterated its outlook for 2021, with president and CEO Pekka Lundmark saying the year ahead will be "challenging" due to market share loss and price erosion in North America.

These issues will be compounded by the financial demands of further investments in 5G R&D as the firm looks to "sacrifice some short-term margin to ensure leadership" in the technology. As a result, the board has not proposed a dividend.

"These are encouraging results, however, as I said in Q3, we expect 2021 to be challenging, a year of transition, with meaningful headwinds due to market share loss and price erosion in North America," said Pekka Lundmark, who took on the role of president and CEO in September 2020.

"Additionally, as I said, delivering on our new operating model for a strong and sustainable long-term business requires us to make further 5G R&D investments in 2021, meaning we will sacrifice some short-term margin to ensure leadership in 5G."

Fourth quarter results saw reported net sales decrease 5% year on year, primarily due to Mobile Access, as declines in network deployment and planning services were partially offset by growth in radio access products. However, Nokia reported "continued improvements" in the Mobile Access portfolio.

Meanwhile cash performance was described as strong after "an early customer payment" of €0.5 billion.

In full year 2020, reported net sales decreased 6%, primarily due to network deployment and planning services in Mobile Access. Nokia Enterprise delivered 11% year-on-year growth in reported net sales. On a constant currency basis, Nokia net sales decreased 4% in full year 2020.

Covid-19 resulted in a net sales impact of approximately €200 million in full year 2020, due to factory closures, however Nokia said it expected the majority of these net sales to be shifted to future periods, rather than being lost. This was weighted against a reported temporary benefit of approximately €250 million, due to lower travel and personnel expenses related to Covid-19.

Confirming the board's position on the dividend, Lundmark said: "We are pleased with Nokia’s recent operational performance and satisfied that we have strengthened our cash position. However, with the focus on increased investments in 5G and strategic areas, while continuing to establish a track record of sustainable cash generation, the board does not propose a dividend or dividend authorisation for the financial year 2020."

Whatever it takes

Lundmark said 5G gross margins increased over the period due to product cost reduction and higher shipment volumes of ReefShark, which outperformed its shipments KPI of 35%, coming in at 43%. A 2021 target of 70% remains "on track". 

On the outlook, he said Nokia would do "whatever it takes" to lead the 5G market.

"This underlines the ongoing progress with our mobile networks turnaround and, as I said in Q3, we will invest whatever it takes to win in 5G.  Completing the turnaround in mobile networks remains our top priority for 2021, and these visible signs of progress give me confidence that we are on the right track but there is still work to be done."

Enterprise net sales in Q4 increased 1% in reported and 5% in constant currency. For full year 2020, an uptick of 11% was reported, 14% in constant currency, driven by private wireless, which brought in 79 new customers in Q4, including AT&T and Verizon.

This does not account for the US federal government cyber deal confirmed after the quarter end in mid-January.

On the firm's technological leadership, Lundmark added: "Pleasingly we already have strong technology leadership positions in many key areas of our new business groups.  In network infrastructure we have industry-leading FP4-based products and in cloud and network services we are jointly developing transformational cloud-native 5G core solutions for CSPs and enterprise customers. In our Mobile Networks business, together with Elisa and Qualcomm, we hold the worldwide 5G speed record."

Outlook

Nokia has maintained its comparable operating margin outlook of 7-10% for 2021.

Lundmark said: "We took important steps in 2020 to accelerate roadmaps, improve execution and create a new way of working, which will enable Nokia to return to a sustainable long-term financial performance.

"We know we have our work cut out for us in 2021, but the new group leadership team has hit the ground running."

Further details on Nokia's long-term outlook and dividend policy will be shared at the firm's Capital Markets Day on March 18.

Lundmark added: "I want to conclude by thanking everyone at Nokia. This has been a year of incredible change where our personal resilience as well as technology has been tested like never before. I am extremely proud of our team, their commitment and their achievements. Thank you."

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