Nokia had its ups and downs in the first half of 2020. Compared to 1H19, net sales were down but operating profits were up and order input is growing.
Total sales in 1H20 were $11.9 billion, down 7 percent from $12.7 billion for 1H19. The company attributed the decline to COVID-19 impacts on its deployment services business as well as a significant drop in sales in China where Nokia opted out of low margin services deals.
Despite the top line decline, Nokia generated an operating profit of $641 million, up 38 percent over $465 million in 1H19.
Nokia maintains a robust new product development program. R&D investments were a strong 19 percent of sales or nearly $2.4 billion in 1H20, down just 3 percent from 1H19.
Most of that R&D is applied to its Networks business unit that accounted for $9.2 billion or 77 percent of total 1H20 sales. Networks’ product lines comprise Mobile Access, Fixed Access and ION (IP Routing & Optical Networks). Other business units – Nokia Software, Nokia Technologies and Group Common & Other – make up the $2.7 billion sales balance.
Mobile Access’ portfolio includes all the radio products that Nokia sells into 4G LTE and 5G networks. This business unit drives the bulk of Nokia’s sales and profitability. 1H20 sales were $6.0 billion or 64 percent of Networks group sales, down 7 percent from $6.3 billion in 1H19. The decline was due to COVID-19 impacts on deployment services, some supply chain delays and elimination of low margin deals along with a slow ramp up with a key North American customer.
Nokia is improving Mobile Access’ competitiveness with product cost reductions, new feature developments and timely software releases.
Its novel “5G Powered by ReefShark” processors provide significant cost reductions. ReefShark reduces size, cost and energy consumption at each cell site, while simultaneously boosting the intelligence and performance of massive MIMO antennas. Nokia plans to incorporate Reefshark into 100 percent of shipments by the end of 2021, up from 25 percent in 2Q20.
Nokia believes it is leading with globally available solutions for next-generation technologies including vRAN, CloudRAN, O-RAN and broad portfolios in massive MIMO and 5G small cells. With a competitive portfolio that includes robust mid-band radios and accelerated O-RAN and vRAN plans, the company expects to achieve a “4G-plus-5G” global market share, excluding China, of about 27 percent at the end of 2020.
Nokia now has 83 commercial 5G deals and 32 live network deployments, running at about a 90 percent win rate. It has deployed large-scale mid-band radios to 55 customers worldwide and demonstrated the first live C-band network in the U.S. in advance of spectrum auctions.
Fixed Access business accounts for 10 percent of Networks’ business. Though profitable, sales declined 10 percent in 1H20 compared to 1H19. Orders are up, nonetheless. 2Q20 wins included Openreach for full-fiber network capacity and coverage to 20 million homes in the U.K., and National Broadband Ireland for fiber broadband solutions to 540,000 rural premises in Ireland.
IP Routing and Optical Networks (ION) business group accounts for 26 percent of Networks. 1H20 sales of $2.4 billion were off 8 percent year-to-year but are increasing as chipset supply improves. Nokia is expanding its IP Routing business into the data center networking market with a true “clean sheet” approach designed to give control back to cloud builders such as Apple for use at its data centers.
Nokia Enterprise is a bright spot. Sales grew 18 percent in 2Q20 driven by web scale and private LTE network deployments mainly in the energy, manufacturing and logistics sectors. Nokia now has more than 180 private 4G and 5G deals with 83 new Enterprise customers added in 1H20.
Nokia Software 1H20 sales with healthy margins were up in all its key growth markets including North America, though down in China and India. The company offers industry-leading cloud-native, multi-vendor, and multi-network solutions combined with a robust partner ecosystem.
Nokia Technologies (Nokia Bell Labs) continues to generate licensing fees with new robust intellectual property in 5G standard essential patents.
By John Celentano, Inside Towers Business Editor
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