Nokia Networks:
We’re increasingly confident Nokia’s Networking segment could maintain operating margins at the higher end of management’s longer term guidance range of 5% to 10%. We believe Nokia can balance a more aggressive sales push around global 4G- LTE builds with tight operational efficiency that has become ingrained in the company.
HERE:
HERE maps were embedded into more than 10 million new cars in 2013 and so far in 2014 Nokia has licensed HERE maps to 2.8 million cars in 1Q14 and 3.3 million cars in 2Q14. We believe Nokia is the dominant vendor in the field (potentially with as much as ~80% of the auto market) and is garnering about €35 per car. We see opportunities to gain more per car as connected car services are tied to auto navigation, HD mapping becomes more of a contributor and with the potential for more self-guided automotive navigation elements get incorporated over time.
Nokia Technologies:
We used a 1% royalty rate baseline, but an argument can be made that there is royalty upside from a greater rate than we have modeled. A comparison to Ericsson would suggest Nokia has a long way to go in collecting royalty revenue from a broad industry vendor base, and Qualcomm’s royalty rates (complete license or single- mode licenses) suggest the royalty rate could be well above 1% as well. In short, we believe our “1%” scenario is conservative suggesting further upside potential not captured in our SOP analysis.
