According to Pekka Lundmark, President and CEO of Nokia, his company delivered a solid Q4 to end 2020 at the high end of their outlook range. In yesterday’s announcement from Espoo, Finland, Lundmark said Nokia had healthy gross margin and operating margin performance for both Q4 and full year 2020.
“We were supported by a regional mix shift towards the higher margin North America region and by our ongoing R&D efforts to enhance product quality and cost competitiveness,” Lundmark said. “From a business group perspective, in Q4 and full year 2020, our gross margin improvement was primarily driven by Networks, as was our full year operating margin performance. In Q4, our operating profit performance benefited from two unexpected, yet significant drivers: a timing benefit of approximately [U.S.$125] million as we recognized net sales at the very end of the quarter, which we had expected in 2021; and we had a net positive fluctuation in Nokia’s venture fund investments of approximately [U.S.$83 million].”
Highlights include:
- 5 percent year-on-year decrease in reported net sales in Q4, primarily due to Mobile Access, as declines in network deployment and planning services were partially offset by growth in radio access products
- 1 percent growth in constant currency net sales in Q4
- Continued improvements in our Mobile Access portfolio; strengthening roadmaps, reducing product costs and improving product performance; commitment to invest in R&D to drive product leadership
- Increase in Mobile Access gross margin in Q4, primarily driven by improved 5G gross margin, partially offset by a project-related loss provision
- Positive operating profit, on a reported basis, in Q4 and full year 2020
- Non-IFRS operating profit in Q4 benefited by approximately EUR 250 million, due to the timing of revenue recognition and a net positive fluctuation in Nokia’s venture fund investments
- Strong free cash flow in Q4 and full year 2020 benefited from an early customer payment of approximately EUR 0.5 billion, which was expected in Q1 2021
- Derecognized EUR 2.9 billion of Finnish deferred tax assets, which are not lost
Lundmark said there were financial improvements in the Mobile Access division reflecting ongoing efforts to strengthen the competitiveness and cost position of mobile radio products.
“Overall, we saw growth in radio access products in Q4 and full year 2020, with growth in 5G partially offset by decreases in legacy radio access products,” said Lundmark. “5G gross margin increased due to product cost reduction, partly helped by higher ReefShark shipment volumes. Our aim was to be above 35 percent for our KPI on shipments of our ‘5G Powered by ReefShark’ portfolio; we ended the year at 43 percent and we remain on track to realize 70 percent by the end of 2021.”
Nokia will make further 5G R&D investments in 2021, according to Lundmark, saying the company will sacrifice some short-term margin to ensure leadership in 5G.
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