Nokia has posted solid Q1 2017 results that includes Brand-Licensing income for the very first time. As per analysts, Nokia has beaten the market expectations with its Q1 2017 results. This is what Reuters has to say in its report,
First-quarter group earnings before interest and taxes (EBIT) fell 1 percent from a year ago to 341 million euros ($372 million) due to drop in spending by telecom operators, but beat analysts’ average forecast of 334 million euros in a Reuters poll.
In his statement, Nokia CEO Rajeev Suri highlighted improving business momentum at the same time admitting that some challenges remain.
CEO’s Statement:
Nokia’s first quarter 2017 results demonstrated our improving business momentum, even if some challenges remain. We slowed the rate of topline decline and generated healthy orders in what is typically a seasonally weak quarter for us. We also continued to see expansion of cross-selling across our full portfolio, delivered excellent gross margins and improved group-level profitability.
The power of our end-to-end portfolio was again evident in our first quarter results. We saw encouraging stabilization in Mobile Networks topline, our strategy to build a strong software business gained momentum in Applications & Analytics, and Nokia Technologies saw significant year-on-year improvement in sales. This progress offset relative weakness in Fixed Networks and IP/Optical Networks, and allowed us to maintain Networks’ strong gross margin – which was among the strongest Networks has ever delivered for a Q1.
Mobile Networks was clearly the highlight of the quarter. A combination of robust market interest in our advanced LTE solutions, including closing the quarter with 145 4.5G customers, and ongoing cost discipline allowed us to get closer to stabilizing our topline while delivering improved profitability.
Applications & Analytics also showed significant, even if early, signs of improvement. Sales were roughly flat compared to the same quarter last year and new orders were robust. As we move forward, we remain focused on improving profitability in this business.
Fixed Networks, which had an excellent 2016, was impacted by several large deployments coming to an end. Despite this, we are seeing growing traction in cross-selling in markets where Nokia has traditionally been strong, and are continuing to invest in the promising cable market.
In IP/Optical Networks our business is heavily weighted towards communication service providers, and that market is currently quite soft. We are making good progress in expanding our business to new customers, including large internet companies where growth is strong, and expect that a coming IP product refresh will strengthen our competitive position. In addition, we are taking steps to ensure that our cost base is appropriate for current market conditions while continuing to invest as needed to maintain long-term competitiveness. Despite these challenges, I am confident that we are taking the right steps in the right way to deliver medium-term improvements in both IP/Optical Networks and Fixed Networks.
Overall, given Nokia’s performance in the first quarter, I am optimistic about the year ahead, even if cautiously so. Our competitive position is strong, we are executing well, and, as a result, we are able to confirm our guidance for full-year 2017.
Outlook for 2017:
Nokia expects slight decline in its network business sales revenue in year 2017, but at the same time expects operating margin to be around 8-10% in full year.
| Metric | Guidance | Commentary |
Nokia | Annual cost savings for Nokia, excluding Nokia Technologies | Approximately EUR 1.2 billion of total annual cost savings to be achieved in full year 20181 | Compared to the combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies. Nokia expects approximately EUR 800 million of the cost savings to come from operating expenses and approximately EUR 400 million from cost of sales.
Restructuring and associated charges are expected to total approximately EUR 1.7 billion. Restructuring and associated cash outflows are expected to total approximately EUR 2.15 billion. |
| Network equipment swaps | Approximately EUR 900 million in total1 | The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokia’s non-IFRS operating profit. |
| Non-IFRS financial income and expenses | Expense of approximately EUR 250 million in full year 2017 (update) | Primarily includes net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans, as well as the impact of foreign exchange rate fluctuations on certain balance sheet items. (This is an update to the earlier outlook for an expense of approximately EUR 300 million in full year 2017. This update is primarily related to lower estimated net interest expenses, as well as the expected performance of certain venture fund investments.)
Nokia expects cash outflows related to financial income and expenses to be approximately EUR 200 million in full year 2017. |
| Non-IFRS tax rate | Between 30% and 35% for full year 2017 | Nokia expects its non-IFRS tax rate for full year 2017 to be around the midpoint of the guidance range.
Nokia expects cash outflows related to taxes to be approximately EUR 600 million for full year 2017. |
| Capital expenditures | Approximately EUR 500 million in full year 2017 | Primarily attributable to Nokia’s Networks business. |
Nokia’s Networks business | Net sales | Decline in line with the primary addressable market in full year 2017 | Nokia’s outlook for net sales and operating margin for Nokia’s Networks business in full year 2017 are expected to be influenced by factors including:
The 2017 outlook for Nokia’s Networks business was provided on November 15, 2016 assuming constant foreign exchange rates. |
Operating margin | 8-10% in full year 2017
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Nokia Technologies | Net sales
| Not provided
| Due to risks and uncertainties in determining the timing and value of significant licensing agreements, Nokia believes it is not appropriate to provide an annual outlook for full year 2017. For patent and brand licensing, Nokia is now disclosing net sales on a quarterly basis, rather than providing an annualized net sales run rate. (This is an update to earlier commentary for the annualized net sales run rate for patent and brand licensing to be approximately EUR 800 million in 2017, assuming no new licensing agreements are signed.) Nokia expects total net sales from digital health and digital media to grow year-on-year in full year 2017, primarily influenced by increased consumer adoption of our digital health and digital media products. |
