Nokia Corporation Interim Report April 25, 2019 at 08:00
(CET +1)
Nokia Corporation Interim Report for Q1 2019
Particularly weak Q1, consistent with our outlook; Full year
2019 guidance maintained due to expected 5G ramp up This is a
summary of the Nokia Corporation interim report for Q1 2019
published today. The complete interim report for Q1 2019 with
tables is available at www.nokia.com/financials. Investors should
not rely on summaries of our interim reports only, but should
review the complete interim reports with tables.
RAJEEV SURI, PRESIDENT AND CEO, ON Q1 2019 RESULTS Q1 was
a weak quarter for Nokia. We expected that it would be, and the
outcome has not changed our perspective on the full year. We are
confident that those issues that drove weakness in our results will
ease over the remainder of the year. While overall risks have
increased slightly, we continue to see positive developments and
are maintaining our guidance for the full year.
As the year progresses, we expect meaningful topline and margin
improvements. 5G revenues are expected to grow sharply,
particularly in the second half of the year, driven by our 36
commercial wins to date. Global services profitability should
improve as we recover in a handful of large rollout projects, IP
routing is now firmly back to growth given our product leadership,
and optical networks continues its long run of growth. We are also
seeing good underlying momentum in our strategic focus areas of
software and enterprise, and we are moving steadily forward on our
path to build a strong licensing business that is sustainable for
the long-term.
In terms of risks, one factor is our slow start to the year. In
addition, competitive intensity has slightly increased in certain
accounts as some competitors seek to be more commercially
aggressive in the early stages of 5G and as some customers reassess
their vendors in light of security concerns, creating near-term
pressure but longer-term opportunity. We will continue to take a
balanced view, and are prepared to invest prudently in cases where
there is the right longer-term profitability profile. We are also
progressing well with our previously announced EUR 700 million cost
savings program.
In short, an expectedly weak Q1, but continued reason for
optimism as the year progresses.
Q1 2019
reported and non-IFRS results. Refer to note 1, "Basis of
Preparation", note 2, "Non-IFRS to reported reconciliation" and
note 13, "Performance measures", in the "Financial statement
information" section for details. |
EUR
million (except for EPS in EUR) |
Q1'19 |
Q1'18 |
YoY change |
Constant currency YoY change |
Net sales |
5 032 |
4 924 |
2% |
(2)% |
Operating profit/(loss) |
(524) |
(336) |
56% |
|
Operating margin % |
(10.4)% |
(6.8)% |
(360)bps |
|
EPS, diluted |
(0.08) |
(0.06) |
|
|
Operating profit/(loss) (non-IFRS) |
(59) |
239 |
|
|
Operating margin % (non-IFRS) |
(1.2)% |
4.8% |
(600)bps |
|
EPS, diluted
(non-IFRS) |
(0.02) |
0.02 |
|
|
Net cash and current
financial investments1 |
1 991 |
4 179 |
(52)% |
|
1Net cash and current
financial investments does not include lease liabilities. |
|
|
|
|
- Non-IFRS net sales in Q1 2019 were EUR 5.1bn, compared to EUR
4.9bn in Q1 2018. Reported net sales in Q1 2019 were EUR 5.0bn,
compared to EUR 4.9bn in Q1 2018. On a constant currency basis,
non-IFRS net sales decreased 1% and reported net sales decreased
2%. Our solid topline reflects the competitiveness of our
offerings, as well as an improving industry environment. We
continue to see positive momentum building for our end-to-end
strategy, with strong customer engagement in all key markets and
across our portfolio. Due to the evolving readiness of the 5G
ecosystem, in Q1 2019, we were unable to recognize approximately
EUR 200 million of net sales related to 5G deliveries mainly in
North America, which we expect to recognize in full before the end
of 2019.
- Non-IFRS diluted EPS in Q1 2019 was negative EUR 0.02, compared
to EUR 0.02 in Q1 2018, primarily driven by lower gross profit,
partially offset by income tax benefits compared to income tax
expenses in the year-ago quarter.
- Reported diluted EPS in Q1 2019 was negative EUR 0.08, compared
to negative EUR 0.06 in Q1 2018, primarily driven by lower gross
profit, partially offset by a net positive fluctuation in financial
income and expenses, higher income tax benefits and lower operating
expenses.
- In Q1 2019, net cash and current financial investments
decreased sequentially by approximately EUR 1.1bn, primarily due to
weak seasonality and changes in net working capital.
- Full year 2019 guidance maintained. Nokia's cash performance in
the second quarter of 2019 is expected to include the payment of
2018 performance-related incentives to employees and a quarterly
dividend. We expect substantially stronger financial performance in
the second half of 2019 as large scale 5G deployments accelerate
meaningfully.
NEW FINANCIAL REPORTING STRUCTURE BEGINNING Q1 2019
Nokia announced organizational changes to accelerate its
strategy execution during the fourth quarter of 2018. In line with
financial regulations, Nokia revised its financial reporting
structure to better reflect its strategy, organizational structure
and the way it evaluates operational performance and allocates
resources. As of the first quarter 2019, Nokia has three reportable
segments: (i) Networks, (ii) Nokia Software and (iii) Nokia
Technologies. In addition, Nokia discloses segment-level data for
Group Common and Other.
For each reportable segment, Nokia provides detailed financial
disclosure, including net sales and operating profit. Additionally,
Nokia provides adjusted financial disclosure for its Networks and
Nokia Software reportable segments, with amounts related to
licensing and Nokia Bell Labs allocated 85% to Networks and 15% to
Nokia Software.
In addition, Nokia provides net sales disclosure for the
following businesses: (i) Mobile Access, (ii) Fixed Access, (iii)
IP Routing and (iv) Optical Networks, which together comprise the
new Networks reportable segment. Nokia also provides separate net
sales disclosure for its different customer types: (i)
Communication Service Providers, (ii) Enterprises and (iii)
Licensees. Net sales by region are provided at the Nokia level.
To provide a basis for comparison, Nokia published a recasting
of financial results on an unaudited basis for all four quarters of
2018 separately, as well as for the full year 2018, on April 18,
2019.
LICENSEES
After the end of Q1 2019, Nokia Technologies agreed to financial
terms with a new licensee, further validating our global licensing
program. The final agreement is expected to be signed during the
coming weeks. Including this new licensee, Nokia Technologies'
annualized net sales run-rate would be approximately EUR 1.4
billion.
Over more than 20 years, we have cumulatively invested over EUR
125 billion in advanced telecommunications technologies R&D and
defined many of the fundamental technologies used in virtually all
mobile devices. We have taken a leadership role in standards
setting, and we have secured a leading share of essential patents
for GSM, 3G, 4G and 5G technologies.
OUTLOOK
Metric |
Full Year 2019 |
Full Year 2020 |
|
Non-IFRS diluted earnings per share |
EUR 0.25 - 0.29 |
EUR 0.37 - 0.42 |
|
Non-IFRS operating margin |
9
- 12% |
12 - 16% |
|
Recurring free cash flow1 |
Slightly positive |
Clearly positive |
|
Annual distribution to shareholders |
Over the long term, Nokia targets to deliver an
earnings-based growing dividend by distributing approximately 40%
to 70% of non-IFRS diluted EPS, taking into account Nokia's cash
position and expected cash flow generation. The annual distribution
would be paid as quarterly dividends. |
1Free cash flow = net cash from operating activities - capital
expenditures + proceeds from sale of property, plant and equipment
and intangible assets - purchase of non-current financial
investments + proceeds from sale of non-current financial
investments.
Key drivers of Nokia's outlook
Net sales and operating margin for Networks and Nokia
Software are expected to be influenced by factors
including:
- Our expectation that we will outperform our primary addressable
market in full year 2019 and over the longer-term, driven by our
strategy, which includes competing in 5G more effectively due to
our strong end-to-end portfolio, focusing on targeted growth
opportunities in attractive adjacent markets and building a strong
network agnostic software business. On a constant currency basis,
we expect our primary addressable market to be flattish in full
year 2019 and to grow in full year 2020;
- The slow start to 2019 and expected weak overall first half
puts significant pressure on execution in the second half. Due to
the evolving readiness of the 5G ecosystem, in Q1 2019, we were
unable to recognize approximately EUR 200 million of net sales
related to 5G deliveries mainly in North America, which we expect
to recognize in full before the end of 2019. (new commentary);
- The timing of completions and acceptances of certain projects,
particularly related to 5G. Based on the evolving readiness of the
5G ecosystem and the staggered nature of 5G rollouts in lead
countries, we expect full year 2019 to follow a similar pattern as
full year 2018: a soft first half followed by a robust second half,
with a particularly weak Q1;
- Competitive intensity could increase in some accounts as some
competitors seek to take share in the early phases of 5G (new
commentary);
- Some customers are reassessing their vendors in light of
security concerns, creating near-term pressure to invest in order
to secure long-term benefits (new commentary);
- Our expectation that we will improve our R&D productivity
and reduce support function costs through the successful execution
of our cost savings program;
- Potential mergers or acquisitions by our customers;
- Our product and regional mix; and
- Macroeconomic, industry and competitive dynamics.
Net sales and operating margin for Nokia Technologies is
expected to be influenced by factors including:
- The timing and value of new and existing patent licensing
agreements with smartphone vendors, automotive companies and
consumer electronics companies;
- Results in brand and technology licensing;
- Costs to protect and enforce our intellectual property rights;
and
- The regulatory landscape.
Additionally, our outlook is based on the following
assumptions:
- Nokia's recurring free cash flow is expected to improve over
the longer-term due to lower cash outflows related to restructuring
and network equipment swaps and improved operational results over
time;
- Non-IFRS financial income and expenses to be an expense of
approximately EUR 300 million in full year 2019 and over the
longer-term;
- Non-IFRS income taxes at a rate of approximately 28% in full
year 2019 and approximately 25% over the longer-term, subject to
the absolute level of profits, regional profit mix and changes to
our operating model;
- Cash outflows related to income taxes of approximately EUR 450
million in full year 2019 and over the longer term until our US or
Finnish deferred tax assets are fully utilized; and
- Capital expenditures of approximately EUR 700 million in full
year 2019 and approximately EUR 600 million over the
longer-term.
NOKIA FINANCIAL RESULTS
EUR million (except for EPS in EUR) |
Q1'19 |
Q1'18 |
YoY change |
Constant currency YoY change |
Net sales |
5 032 |
4 924 |
2% |
(2)% |
Networks |
3 944 |
3 783 |
4% |
0% |
Nokia Software |
543 |
541 |
0% |
(4)% |
Nokia
Technologies |
370 |
365 |
1% |
0% |
Group Common and
Other |
220 |
252 |
(13)% |
(12)% |
Non-IFRS
exclusions |
(25) |
(5) |
400% |
|
Gross profit |
1 580 |
1 805 |
(12)% |
|
Operating profit/(loss) |
(524) |
(336) |
|
|
Networks |
(254) |
46 |
|
|
Nokia Software |
(7) |
1 |
|
|
Nokia
Technologies |
302 |
274 |
10% |
|
Group Common and
Other |
(100) |
(83) |
|
|
Non-IFRS
exclusions |
(464) |
(575) |
|
|
Operating margin % |
(10.4)% |
(6.8)% |
(360)bps |
|
Gross profit (non-IFRS) |
1 641 |
1 941 |
(15)% |
|
Operating profit/(loss) (non-IFRS) |
(59) |
239 |
|
|
Operating margin %
(non-IFRS) |
(1.2)% |
4.8% |
(600)bps |
|
Financial income and expenses |
(55) |
(108) |
(49)% |
|
Income taxes |
142 |
94 |
51% |
|
Profit/(loss) for the period |
(442) |
(354) |
|
|
EPS, diluted |
(0.08) |
(0.06) |
|
|
Financial income and expenses (non-IFRS) |
(93) |
(116) |
(20)% |
|
Income taxes (non-IFRS) |
41 |
(36) |
|
|
Profit/(loss) for the period (non-IFRS) |
(116) |
83 |
|
|
EPS, diluted
(non-IFRS) |
(0.02) |
0.02 |
|
|
Results are
as reported and relate to continuing operations unless otherwise
specified. The financial information in this report is unaudited.
Non-IFRS results exclude costs related to the acquisition of
Alcatel-Lucent and related integration, goodwill impairment
charges, intangible asset amortization and other purchase price
fair value adjustments, restructuring and associated charges and
certain other items that may not be indicative of Nokia's
underlying business performance. For details, please refer to note
2, "Non-IFRS to reported reconciliation", in the notes to the
Financial statement information in this report. Change in net sales
at constant currency excludes the effect of changes in exchange
rates in comparison to euro, our reporting currency. For more
information on currency exposures, please refer to note 1, "Basis
of Preparation", in the "Financial statement information" section
in this report. |
Net sales by region
EUR
million |
Q1'19 |
Q1'18 |
YoY change |
Constant currency YoY change |
Asia-Pacific |
963 |
910 |
6% |
2% |
Europe |
1 500 |
1 506 |
(0)% |
(1)% |
Greater China |
434 |
480 |
(10)% |
(12)% |
Latin America |
305 |
297 |
3% |
0% |
Middle East & Africa |
413 |
431 |
(4)% |
(7)% |
North America |
1 418 |
1 301 |
9% |
1% |
Total |
5
032 |
4
924 |
2% |
(2)% |
Net sales by customer type
EUR
million |
Q1'19 |
Q1'18 |
YoY change |
Constant currency YoY change |
Communication service providers |
4 207 |
4 080 |
3% |
(1)% |
Enterprise |
260 |
244 |
7% |
3% |
Licensees |
370 |
349 |
6% |
5% |
Other1 |
195 |
251 |
(22)% |
(21)% |
Total |
5 032 |
4 924 |
2% |
(2)% |
1Includes
net sales of Alcatel Submarine Networks (ASN) and Radio Frequency
Systems (RFS), both of which are being managed as separate
entities, and certain other items, such as eliminations of
inter-segment revenues and certain items related to purchase price
allocation. ASN and RFS net sales include also revenue from
communications service providers and enterprise customers. |
Our new Nokia Enterprise business is performing well. Net sales
to enterprise customers, excluding the third party integration
business that we are exiting, grew 8% on a reported basis, and 5%
on a constant currency basis.
Nokia, Q1 2019 compared to Q1 2018
Nokia reported net sales grew approximately 2%. Nokia non-IFRS
net sales grew approximately 3%, due to the exclusion of EUR 22
million of restructuring and associated charges. On a constant
currency basis, Nokia reported net sales decreased approximately 2%
and Nokia non-IFRS net sales decreased approximately 1%.
Nokia non-IFRS and reported net sales, excluding approximately
EUR 40 million (EUR 10 million in Q1 2018) of one-time licensing
net sales in Q1 2019, both grew by approximately 2%, as our
customers added network capacity in preparation for the continued
rise in broadband traffic driven by 5G. Our solid topline in Q1
2019 reflected the competitiveness of our end-to-end portfolio,
with particular strength in IP routing, as well as an improving
industry environment.
Due to the evolving readiness of the 5G ecosystem, in Q1 2019,
we were unable to recognize approximately EUR 200 million of net
sales related to 5G deliveries mainly in North America, which we
expect to recognize in full before the end of 2019.
Networks and Nokia Software continued to see strong customer
engagement related to 5G across multiple parts of our portfolio,
including radio, cloud core, transport, IP routing and network
agnostic software. In Q1 2019, we continued to make progress with
our strategy to diversify and grow, with solid results in Nokia
Software and with enterprise customers.
In Nokia Technologies, the growth in net sales was primarily due
to one-time licensing net sales in Q1 2019. On a recurring basis,
net sales declined by 4%.
The growth in net sales to enterprise customers was primarily
due to strong demand for our market-leading IP routing portfolio
and, to a lesser extent, particularly strong percentage growth in
private LTE and 5G wireless networks for industrial applications.
We see strong momentum in industries like utilities, oil, gas,
mines, manufacturing and logistics, as well as the public sector.
Excluding the third party integration business that we are exiting,
net sales to enterprise customers grew 8% on a reported basis, and
5% on a constant currency basis.
The decline in Nokia gross profit was primarily attributable to
Networks, which was negatively affected by broad-based gross margin
erosion in Mobile Access.
Nokia non-IFRS diluted EPS decreased by EUR 0.04, primarily due
to lower gross profit, partially offset by income tax benefits
compared to income tax expenses in the year-ago quarter.
Nokia reported diluted EPS decreased by EUR 0.02, primarily
driven by lower gross profit, partially offset by a net positive
fluctuation in financial income and expenses, higher income tax
benefits and lower operating expenses.
CASH AND CASH FLOW IN Q1 2019
During the first quarter of 2019 Nokia's free cash flow was
negative EUR 913 million driven by:
- continued cash outflows related to restructuring and network
equipment swaps;
- seasonally weak profitability in the first quarter;
- seasonally lower cash collection following significantly higher
sale of receivables in the fourth quarter of 2018 and certain
unexpected and unusual overdues at end of the first quarter by a
limited number of customers; and
- seasonally higher inventory levels, as well as higher than
normal inventory levels due to: a) our decision to ensure
sufficient flexibility to deliver higher levels of equipment sales,
particularly related to 5G and b) the deferral of revenue
recognition, mainly in North America. In Q1 2019, we were unable to
recognize approximately EUR 200 million of net sales, which we
expect to recognize in full before the end of 2019.
In the second quarter 2019 Nokia expects inventories to remain
at elevated levels, followed by significantly improved inventory
levels in second half of 2019 as large scale 5G deployments
accelerate meaningfully.
Nokia has established a free cash flow program to ensure
company-wide focus on free cash flow and release of working
capital, including project asset optimization, review of contract
terms & conditions as well supply chain and inventory
optimization. Senior leaders of Nokia have significant part of
their incentives tied to free cash flow improvement targets in 2019
and beyond.
EUR million, at end of
period |
Q1'19 |
Q4'18 |
QoQ
change |
Total cash and current financial
investments1 |
6 394 |
6 873 |
(7)% |
Net cash and current
financial investments1 |
1
991 |
3
053 |
(35)% |
1 Net cash
and current financial investments does not include lease
liabilities. For details, please refer to note 7, "Net cash and
current financial investments", and note 13, "Performance
measures", in the "Financial statement information" section in this
report. |
During the first quarter 2019, Nokia's total cash and current
financial investments decreased by EUR 479 million and Nokia's net
cash and current financial investments ("net cash") decreased by
EUR 1 062 million.
Foreign exchange rates had an approximately EUR 50 million
negative impact on net cash, primarily related to liabilities.
In the first quarter 2019, net cash used in operating activities
was EUR 747 million:
- Nokia's adjusted profit before changes in net working capital
was EUR 7 million in the first quarter 2019.
- In the first quarter 2019, Nokia generated a decrease in net
cash related to net working capital of approximately EUR 530
million. Excluding approximately EUR 130 million of restructuring
and associated cash outflows, Nokia generated an approximately EUR
410 million decrease in net cash related to net working capital,
primarily due to a decrease in liabilities and an increase in
inventories, partially offset by a decrease in receivables.
- The decrease in receivables was approximately EUR 380 million,
primarily due to a seasonal decrease. The seasonal decrease was
less than normal, due to the high level of receivables sold in Q4
2018.
- The increase in inventories was approximately EUR 280 million,
primarily due to our decision to ensure sufficient flexibility to
deliver higher levels of equipment sales, particularly related to
5G, and a seasonal increase in inventories. In Q1 2019, we were
unable to recognize approximately EUR 200 million of net sales
related to 5G deliveries mainly in North America, which we expect
to recognize in full before the end of 2019.
- The decrease in liabilities was approximately EUR 510 million,
primarily due to the seasonal decrease in accounts payable.
- In addition, cash taxes amounted to an outflow of approximately
EUR 180 million. In Q1 2019, cash taxes were at an elevated level
primarily due to the timing of tax payments. Also, net interest
amounted to an outflow of approximately EUR 40 million.
- The implementation of IFRS 16 positively impacted our net cash
used in operating activities and negatively impacted our net cash
from financing activities, both by approximately EUR 60
million.
In
the first quarter 2019, net cash used in investing activities
primarily related to capital expenditures of approximately EUR 180
million.
In the first quarter 2019, net cash used in financing activities
primarily related to leasing payments of approximately EUR 60
million following the implementation of IFRS 16.
Cost savings program
We expect our most recent cost savings program to result in a
net EUR 700 million reduction of non-IFRS operating expenses and
production overheads in full year 2020 compared to full year 2018,
of which EUR 500 million is expected to come from operating
expenses and EUR 200 million is expected to come from cost of
sales. The related restructuring charges are expected to total EUR
900 million.
Balances related to previous restructuring and cost savings
programs have been included as part of this cost savings program.
At the beginning of Q1 2019, the balance of restructuring and
associated liabilities related to prior cost savings programs was
approximately EUR 630 million. This amount is included in the total
expected restructuring and associated cash outflows of EUR
1 550 million, rounded to the nearest EUR 50 million, in
addition to the approximately EUR 900 million of expected cash
outflows related to our most recent cost savings program.
The following table summarizes the financial information related
to our cost savings program as of the end of the first quarter
2019.
In EUR million,
approximately |
Q1'19 |
Balance of restructuring and associated
liabilities for prior programs |
630 |
+ Charges in the quarter |
160 |
- Cash outflows in the quarter |
130 |
= Ending balance of restructuring and
associated liabilities |
660 |
of which restructuring provisions |
470 |
of which other associated liabilities |
190 |
|
|
Total expected restructuring and associated
charges |
900 |
- Cumulative recorded |
160 |
= Charges remaining to be recorded |
740 |
|
|
Total expected restructuring and associated cash
outflows |
1 550 |
- Cumulative recorded |
130 |
= Cash outflows remaining to be
recorded |
1 420 |
The below table includes future expectations related to our most
recent cost savings program, as well as the remaining cash outflows
related to our previous programs and network equipment swaps.
|
Expected amounts
for |
In EUR million,
approximately |
FY 2019 |
FY 2020 and beyond |
Total |
rounded to the nearest EUR
50 million |
|
|
|
|
Recurring annual cost
savings |
200 |
500 |
700 |
- operating
expenses |
150 |
350 |
500 |
- cost of sales |
50 |
150 |
200 |
Restructuring and
associated charges |
550 |
350 |
900 |
Restructuring and
associated cash outflows |
700 |
850 |
1 550 |
Charges related to network
equipment swaps |
150 |
0 |
150 |
Cash outflows related to network equipment swaps |
150 |
0 |
150 |
OPERATIONAL HIGHLIGHTS
Nokia has begun the year by strengthening its position across
key markets and industries and punctuating the period with a number
of important 5G commercial deals.
In the first pillar of our strategy, leading in
high-performance, end-to-end networks with communication service
providers:
During the period Nokia signed significant deals with major
providers across the globe, reaching 30 commercial 5G deals during
the quarter. These included: a MoU with Telecom Egypt to
introduce a 5G network and test cases in the Egyptian market; the
launch of South Africa's first commercial-ready 5G network in Cape
Town with South African Operator rain; a deal with Saudi
Telecom Company to deploy Nokia's end-to-end 5G solutions in
western and southern Saudi Arabia; and a five-year deal with
U.S. Cellular to provide end-to-end 5G technology, software
and services solutions.
In Europe, A1 in Austria announced they selected Nokia to
expand next-generation 5G mobile communications in that country.
Switzerland's Salt selected Nokia's radio and mobile core
network in order to prepare for the roll-out of 5G, and Ice
Group will deploy Nokia's AirScale Radio Access technology in
urban areas across Norway to build a 5G-ready mobile network. After
the quarter ended, Nokia announced the first 5G call on a
commercial network in Latin America with ANTEL Uruguay.
In other markets, Nokia, in partnership with Sprint, is
field testing standards-based 5G in Los Angeles. Telenor
Pakistan announced it is deploying the country's first 5G-ready
cloud-based RAN platform and controllers, and Vodafone Idea
in India announced it will roll out its future ready LTE network
across multiple service areas, based on Nokia's Single RAN, massive
MIMO and small cells portfolio.
In optical, Bharti Airtel in India announced it will
trial Nokia's fronthaul solution. M-net in Bavaria has
become the first carrier to trial Nokia's PSE-3 coherent digital
signal processing technology. PTCL in Pakistan is also
deploying the Nokia PSE-3 chipset to build a 100G optical network,
and Nokia announced that it was selected by Liquid Telecom
Kenya to upgrade its existing fiber network.
In IP routing, the Nokia 7750 SR-s, powered by the FP4 network
processor, was chosen by multiple operators. Indosat Ooredoo
selected the router to upgrade its IP/MPLS network, ensuring the
scale, security and functionality needed for the 100GE network.
DE-CIX announced it is the first Internet Exchange in the
world to offer 400-GE access technology with the Nokia 7750 SR-s
which is deployed in DE-CIX Frankfurt, the Internet Exchange with
the highest peak traffic in the world. After the quarter ended,
Proximus announced it will deliver a tenfold capacity
increase to its IP transport network with the 7750 SR-s, and
BT also announced it had selected the platform to
dramatically boost its backbone network capacity to meet growing
traffic demand from FTTP and 5G.
Nokia also announced USD$750,000 support for IETF, the
premier Internet standards development organization, and will host
the 106th IETF meeting in November.
In fixed access, Nokia introduced a new FastMile 5G
Gateway that allows operators upgrading their LTE network to
capture new Fixed Wireless Access (FWA) revenue and accelerate 5G
rollouts. In Australia, Nokia partnered with Optus to
provide the 5G RAN and Fastmile 5G CPEs for their home broadband.
Telia will introduce Nokia FastMile 5G gateway for 4G-5G FWA
to the Finnish market. The FWA 5G gateway is also part of the rain
launch of its 5G network in Cape Town. KDDI in Japan is
deploying Nokia's G.fast solution while Chorus in New
Zealand will trial Nokia's market leading XGS-PON solution to bring
10 gigabit per second (Gbps) services to residential and SME
customers in selected areas of Auckland and Wellington.
Nokia's Nuage Networks SD-WAN 2.0 solution was chosen by managed
service provider SDNbucks to provide fully managed
connectivity for SciSports cloud-based data analytics service.
Nuage Networks was also selected by Airtel for datacenter
automation in a first-of-its-kind initiative in India.
Telecom Egypt and Nokia announced plans to build the
first cloud infrastructure in Egypt exclusively for IoT services.
Telecom Egypt will use Nokia's Worldwide IoT Network Grid (WING) as
a service to launch IoT services to its enterprise customers. In
addition, under a MOU, Zain Saudi Arabia will leverage
Nokia's WING to launch IoT services in the country.
Multiple additions to the portfolio were announced at Mobile
World Congress. Nokia announced a raft of enhancements to its
Anyhaul transport portfolio that help operators prepare
their networks for 5G by delivering throughput speeds of up to 25
Gbps to base stations. New additions to the small cell
portfolio included: a new mmWave small cell for extreme-traffic
outdoor areas and a small cell mid-band radio to seamlessly upgrade
indoor coverage to 5G. Nokia introduced a 5G Maturity Index to
guide operators on how to align technology investments with
business objectives to succeed with 5G-enabled services. And Nokia
launched Cognitive Collaboration Hubs to help operators
design 5G networks and create AI-enabled use cases.
Other notable news announced at Mobile World Congress includes:
a collaboration with Vodafone on active antennas to boost 5G
radio capacity and reduce costs, and a partnership and
demonstration with CMCC for 5G AI powered QoE solution for
an immersive VR gaming application. Nokia announced adoption of the
fronthaul specifications of the Open Radio Access Network Alliance
(O-RAN) and is now part of the AT&T Innovation
Program.
In the second pillar of our strategy, expanding network sales
to select vertical markets needing high-performing, secure
networks:
Nokia partnered with Qualcomm and Deutsche Messe to showcase 10
industrial applications/use cases in the 5G Arena at the
world's largest industrial trade show Hannover Messe 2019.
Nokia signed a five-year cooperation agreement with Oulu Port
Ltd to provide a private wireless service with Ukkoverkot.
Norway's MIRIS has chosen Nokia's AirFrame Open Edge data
center technology to support delivery of Smart City services in
business parks and residential areas.
In other geographies, Nokia partnered with Dawiyat
Integrated Telecommunications and Information Technology Company,
part of Saudi Electricity Corporation (SEC), to collaborate on
multiple projects to develop the ecosystem for Industry 4.0 in the
country.
Room40, a company specializing in security monitoring
analytics solutions, selected Nokia's Scene Analytics to flag
emergencies and crime at sites in Belgium.
Nokia, along with Continental, Deutsche Telekom,
Fraunhofer ESK and MHP, successfully concluded tests
of connected driving technology on the A9 Digital Test Track. In
addition, Nokia joined ARENA2036, a collaboration of
automotive industry leaders, to create a flexible research factory
model for production of the next generation of automobiles.
Nokia also signed an agreement with Pöyry and
Infosys to further enhance and accelerate the adoption of
KRTI 4.0TM, an artificial intelligence (AI) framework for
operational excellence.
In the third pillar of our strategy, developing a strong
software business at scale:
This was the first quarter in which Nokia's Cloud Core solutions
resources and sales accountability were aligned to the Nokia
Software Business Group. While work remains to complete and
optimize the integration, Nokia Software continued to demonstrate
the strength of its network agnostic portfolio with healthy order
intake and wins at Bharti, China Unicom, Globacom
Nigeria, Ooredoo Qatar, Orange Poland,
Telefonica Peru, Vodafone Idea, and US
Cellular.
Nokia and Korea Telecom signed a MOU to collaborate and
trial various 5G technologies, including NFV and network slicing.
Nokia's IMPACT IoT platform was chosen by M1 Limited to
enhance its Smart City IoT Solutions. IMPACT was also selected by
Rakuten to tap opportunities in Japan, and we are also
working with Rakuten to build a new mobile network in Japan.
Nokia and Grameenphone announced completion of the
migration of Grameenphone's 72 million customers to the Nokia User
Data Convergence (UDC) cloud core platform, and Telefónica
Group selected Nokia as its Service Operation Center
vendor.
In the fourth pillar of our strategy, now focused primarily
on licensing:
During Q1 2019, Nokia signed patent licensing agreements with
Chinese smartphone vendors including TCL, Tinno and
Wiko. Nokia also saw continuing momentum in automotive
licensing as Audi and Porsche joined BMW, Mini and
Rolls Royce on the roster of brands licensed to our patents for
their connected cars.
After the end of Q1 2019, Nokia Technologies agreed to financial
terms with a new licensee, further validating our global licensing
program. The final agreement is expected to be signed during the
coming weeks. Including this new licensee, Nokia Technologies'
annualized net sales run-rate would be approximately EUR 1.4
billion. Over more than 20 years, we have cumulatively invested
over EUR 125 billion in advanced telecommunications technologies
R&D and defined many of the fundamental technologies used in
virtually all mobile devices. We have taken a leadership role in
standards setting, and we have secured a leading share of essential
patents for GSM, 3G, 4G and 5G technologies.
HMD Global, the home of Nokia phones, launched four new
Nokia smartphones and one featurephone at Mobile World Congress,
delivering pioneering experiences and true innovation in imaging.
Gaining over 50% share of voice in smartphone coverage of MWC, the
new Nokia devices also won 24 awards during the show; 19 for Nokia
9 PureView. HMD also announced it had technical approval from three
North American carriers to start sales in the US and Canada.
Shortly after the quarter closed, OPPO launched its new
flagship smartphone, the OPPO Reno, which uses Nokia's OZO Audio
technology.
RISKS AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its businesses are exposed to
various risks and uncertainties and certain statements herein that
are not historical facts are forward-looking statements. These
forward-looking statements reflect Nokia's current expectations and
views of future developments and include statements regarding: A)
expectations, plans or benefits related to our strategies and
growth management; B) expectations, plans or benefits related to
future performance of our businesses, including our ability to
execute during the second half of 2019, and any expected future
dividends; C) expectations and targets regarding financial
performance, results, operating expenses, taxes, currency exchange
rates, hedging, cost savings and competitiveness, as well as
results of operations including targeted synergies and those
related to market share, prices, net sales, income and margins; D)
expectations, plans or benefits related to changes in
organizational and operational structure; E) expectations regarding
market developments, general economic conditions and structural
changes; F) our ability to integrate acquired businesses into our
operations and achieve the targeted business plans and benefits,
including targeted benefits, synergies, cost savings and
efficiencies; G) expectations, plans or benefits related to any
future collaboration or to business collaboration agreements or
patent license agreements or arbitration awards, including income
to be received under any collaboration or partnership, agreement or
award; H) timing of the deliveries of our products and services,
including our short term and longer term expectations around the
rollout of 5G and our ability to capitalize on such rollout; and
the overall readiness of the 5G ecosystem ; I) expectations and
targets regarding collaboration and partnering arrangements, joint
ventures or the creation of joint ventures, and the related
administrative, legal, regulatory and other conditions, as well as
our expected customer reach; J) outcome of pending and threatened
litigation, arbitration, disputes, regulatory proceedings or
investigations by authorities; K) expectations regarding
restructurings, investments, capital structure optimization
efforts, uses of proceeds from transactions, acquisitions and
divestments and our ability to achieve the financial and
operational targets set in connection with any such restructurings,
investments, capital structure optimization efforts, divestments
and acquisitions, including our current cost savings program; L)
expectations, plans or benefits related to future capital
expenditures, temporary incremental expenditures or other R&D
expenditures to develop or rollout new products, including 5G; and
M) statements preceded by or including "believe", "expect",
"expectations", "commit", "anticipate", "foresee", "see", "target",
"estimate", "designed", "aim", "plan", "intend", "influence",
"assumption", "focus", "continue", "project", "should", "is to",
"will" or similar expressions. These forward-looking statements are
subject to a number of risks and uncertainties, many of which are
beyond our control, which could cause actual results to differ
materially from such statements. These statements are based on
management's best assumptions and beliefs in light of the
information currently available to it. These forward-looking
statements are only predictions based upon our current expectations
and views of future events and developments and are subject to
risks and uncertainties that are difficult to predict because they
relate to events and depend on circumstances that will occur in the
future. Factors, including risks and uncertainties that could cause
these differences include, but are not limited to: 1) our strategy
is subject to various risks and uncertainties and we may be unable
to successfully implement our strategic plans, sustain or improve
the operational and financial performance of our business groups,
correctly identify or successfully pursue business opportunities or
otherwise grow our business; 2) general economic and market
conditions and other developments in the economies where we
operate, including the timeline for the deployment of 5G and our
ability to successfully capitalize on that deployment; 3)
competition and our ability to effectively and profitably invest in
existing and new high-quality products, services, upgrades
and technologies and bring them to market in a timely manner; 4)
our dependence on the development of the industries in which we
operate, including the cyclicality and variability of the
information technology and telecommunications industries and our
own R&D capabilities and investments; 5) our dependence on a
limited number of customers and large multi-year agreements, as
well as external events impacting our customers including mergers
and acquisitions; 6) our ability to maintain our existing sources
of intellectual property-related revenue through our intellectual
property, including through licensing, establish new sources of
revenue and protect our intellectual property from infringement; 7)
our ability to manage and improve our financial and operating
performance, cost savings, competitiveness and synergies generally,
expectations and timing around our ability to recognize any net
sales and our ability to implement changes to our organizational
and operational structure efficiently; 8) our global business and
exposure to regulatory, political or other developments in various
countries or regions, including emerging markets and the associated
risks in relation to tax matters and exchange controls, among
others; 9) our ability to achieve the anticipated benefits,
synergies, cost savings and efficiencies of acquisitions, including
the acquisition of Alcatel-Lucent; 10) exchange rate fluctuations,
as well as hedging activities; 11) our ability to successfully
realize the expectations, plans or benefits related to any future
collaboration or business collaboration agreements and patent
license agreements or arbitration awards, including income to be
received under any collaboration, partnership, agreement or
arbitration award; 12) Nokia Technologies' ability to protect its
IPR and to maintain and establish new sources of patent, brand and
technology licensing income and IPR-related revenues, particularly
in the smartphone market, which may not materialize as planned, 13)
our dependence on IPR technologies, including those that we have
developed and those that are licensed to us, and the risk of
associated IPR-related legal claims, licensing costs and
restrictions on use; 14) our exposure to direct and indirect
regulation, including economic or trade policies, and the
reliability of our governance, internal controls and compliance
processes to prevent regulatory penalties in our business or in our
joint ventures; 15) our reliance on third-party solutions for data
storage and service distribution, which expose us to risks relating
to security, regulation and cybersecurity breaches; 16)
inefficiencies, breaches, malfunctions or disruptions of
information technology systems, or our customers' security
concerns; 17) our exposure to various legal frameworks regulating
corruption, fraud, trade policies, and other risk areas, and the
possibility of proceedings or investigations that result in fines,
penalties or sanctions; 18) adverse developments with respect to
customer financing or extended payment terms we provide to
customers; 19) the potential complex tax issues, tax disputes and
tax obligations we may face in various jurisdictions, including the
risk of obligations to pay additional taxes; 20) our actual or
anticipated performance, among other factors, which could reduce
our ability to utilize deferred tax assets; 21) our ability to
retain, motivate, develop and recruit appropriately skilled
employees; 22) disruptions to our manufacturing, service creation,
delivery, logistics and supply chain processes, and the risks
related to our geographically-concentrated production sites; 23)
the impact of litigation, arbitration, agreement-related disputes
or product liability allegations associated with our business; 24)
our ability to re-establish investment grade rating or maintain our
credit ratings; 25) our ability to achieve targeted benefits from,
or successfully implement planned transactions, as well as the
liabilities related thereto; 26) our involvement in joint ventures
and jointly-managed companies; 27) the carrying amount of our
goodwill may not be recoverable; 28) uncertainty related to the
amount of dividends and equity return we are able to distribute to
shareholders for each financial period; 29) pension costs, employee
fund-related costs, and healthcare costs; 30) our ability to
successfully complete and capitalize on our order backlogs and
continue converting our sales pipeline into net sales; and 31)
risks related to undersea infrastructure, as well as the risk
factors specified on pages 60 to 75 of our 2018 annual report on
Form 20-F published on March 21, 2019 under "Operating and
financial review and prospects-Risk factors" and in our other
filings or documents furnished with the U.S. Securities and
Exchange Commission. Other unknown or unpredictable factors or
underlying assumptions subsequently proven to be incorrect could
cause actual results to differ materially from those in the
forward-looking statements. We do not undertake any obligation to
publicly update or revise forward-looking statements, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
This financial report was authorized for issue by management on
April 24, 2019.
- Nokia's Annual General Meeting 2019 is planned to be held on
May 21, 2019.
- Nokia plans to publish its second quarter and half year 2019
results on July 25, 2019.
- Nokia plans to publish its third quarter and January-September
2019 results on October 24, 2019.
Media Enquiries:
Nokia CommunicationsTel. +358 (0) 10 448 4900Email:
press.services@nokia.com Jon Peet, Vice President, Corporate
Communications
Investor Enquiries:Nokia Investor RelationsTel. +358 4080
3 4080Email: investor.relations@nokia.com About Nokia We
create the technology to connect the world. We develop and deliver
the industry's only end-to-end portfolio of network equipment,
software, services and licensing that is available globally. Our
customers include communications service providers whose combined
networks support 6.1 billion subscriptions, as well as enterprises
in the private and public sector that use our network portfolio to
increase productivity and enrich lives.
Through our research teams, including the world-renowned Nokia
Bell Labs, we are leading the world to adopt end-to-end 5G networks
that are faster, more secure and capable of revolutionizing lives,
economies and societies. Nokia adheres to the highest ethical
business standards as we create technology with social purpose,
quality and integrity. www.nokia.com
- Nokia Q1 2019 interim report.pdf
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