Nokia’s Q3 numbers failed to impress due to weakness in its Networks business, even as its patent licensing unit did its best to make up for it.

Worryingly for shareholders, the company said it expects market conditions for full year 2017 to be “slightly more challenging than earlier anticipated”, with a “4 per cent to 5 per cent decline in the primary addressable market for Nokia’s Networks business”, compared with earlier guidance of 3 per cent to 5 per cent.

It also noted “uncertainty related to the timing of completions and acceptances of certain projects”; “robust competition in China”; and “uncertainty related to potential mergers or acquisitions by our customers”.

Rajeev Suri, CEO (pictured), said: “The performance of our patent licensing business was the clear highlight of the quarter,” citing “a favourable arbitration outcome with LG” which led to an agreement for a longer licensing deal.

“With this fast and effective execution against our patent licensing strategy, we have approximately doubled our recurring licensing revenue from €578 million in 2014. I am also particularly pleased that in 2017 the growth in patent licensing has helped to offset the sales decline on the Networks side,” he continued.

Figures
Networks operating profit of €334 million was down 23 per cent year-on-year, on sales of €4.8 billion, down 9 per cent. There was weakness in Greater China (down 20 per cent), North America (16 per cent), Latin America (10 per cent) and Europe (7 per cent).

Quarterly mobile networks sales of €1.6 billion were down by 17 per cent.

“I have noted in previous quarters that the R&D team in this business group has faced an extraordinarily high workload. Given this situation, we have seen some issues with the time taken to converge some products that have, unfortunately, impacted a small number of customers,” Suri said.

There were positives in the Networks unit. The company saw constant currency year-on-year growth in Global Services and IP Routing, as well as in its Middle East and Africa, and Asia-Pacific regions. Orders were also up in the Applications & Analytics business, which recorded its fifth consecutive quarter of order growth, “showing the progress we are making in our strategy to build a strong, stand-alone software business”.

Networks gross margin also improved: “a remarkable achievement in the context of a market that remains challenging”, Suri noted.

Nokia Technologies, which houses the patent licensing activities along with Nokia’s health and digital media activities, generated an operating profit of €390 million, up 73 per cent year-on-year, on revenue of €483 million, up 37 per cent, benefitting from the LG deal.

Some €474 million of revenue was related to patent and brand licensing, with just €9 million generated from digital health and digital media.

On a group level, Nokia recorded a €141 million impairment charge related to its digital health business, having adjusted its long-term cash flow projections for the unit: “Going forward, Nokia Technologies aims to have a larger impact with consumers and the medical community through a more focused, more agile digital health business”.

Nokia already announced plans to reduce its investments in the VR space.

As a whole, Nokia reported a loss attributable to shareholders of €192 million, compared with a prior-year loss of €119 million, on revenue of €5.5 billion, down 7 per cent.

“In short, Q3 was a period in which we faced some challenges, but delivered good performance in many areas as well as momentum in the execution of our strategy,” the CEO concluded.