Patents, maps, and R&D muscle: Nokia gives sneak peek of how the company will look post-Microsoft

Patents, maps, and R&D muscle: Nokia gives sneak peek of how the company will look post-Microsoft

Summary: Nokia's most recent set of financial results have given a glimpse of how its bottom line will look once it's sold its devices and services business to Redmond.

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With Microsoft's planned acquisition of its devices and services business almost complete, Nokia has given a glimpse of how the post-handset company will look.

The most important change, at least for investors, is likely to be a healthier bottom line.

"Subject to the deal with Microsoft closing, Nokia's earnings profile and financial position are expected to strengthen significantly," Nokia CFO Timo Ihamuotila said on Tuesday.

Ihamuotila's remarks were made on a call with analysts to discuss the company's third quarter results, likely to be the last where Nokia's handset business features as anything other than discontinued operations.

According to Nokia, if the devices and services business is removed from the latest set of financials, its operating profit would be several percentage points higher, though its sales, and expenses, would be around €3bn less.

Once the Microsoft deal has been approved by shareholders, expected at a vote next month, Nokia will be comprised of three businesses: Here, its mapping unit; networking company NSN; and its Advanced Technologies business.

"All three businesses — NSN, Here and Advanced Technologies — are expected to benefit from the sale of our devices and services business. All three are generating cash and offer significant opportunities ahead," Ihamuotila said.

Here's operating profit for the quarter was €14m on sales of €211m, while NSN's was €166m on sales of €2.6bn. 

Advanced Technologies, which includes Nokia's R&D and patents business, is not yet a unit in its own right, so its financials were not reported separately. However, Ihamuotila gave a flavour of its performance, saying it brings in around €500m a year in revenue. The figure doesn't include the €1.65bn that Microsoft will pay to license Nokia's patents after the devices unit deal closes.

Nokia plans to grow its patents business post-acquisition by signing agreements with companies that are currently "unlicensed", and licensing out patents that have previously not been licensed at all while the company had a handset business.

"Subject to the closing of the transaction with Microsoft, we will have further flexibility in making many of these technologies available to the broader market which will provide us with new technology creation and licensing opportunities that have not yet been captured in our current revenue run rate," Ihamuotila said.

It's also expecting the addition of mobile connectivity to more and more devices will help its patents business.

Nokia is hoping to grow its mapping business Here through automotive and enterprise sales.

The company said in the automotive sector, it expects growth both as the penetration of in-car wireless connectivity and navigation systems continues to spread, as well as through an increase in licence fees.

It's also planning to build on its LiveSight, its augmented reality app. "We are investing in location services that leverage the multiple sensors in mobile devices together with location data, social data and predictive analytics to create new consumer experiences," Ihamuotila said. Nokia is also hoping to sell more location services to enterprise software companies, and already has SAP and Oracle among its customers.

Nokia will presumably find itself increasingly competing against Google, whose mapping services Ihamuotila took a few well aimed jabs at.

"Compared to Google's less flexible and advertising-driven approach, we believe Here's strategy is far better aligned with the needs of a broad range of existing and future customers who are developing their own future cloud-based services, in particular those that care about their own brand and end-customer relationships. Google's all or nothing approach to licensing its suite of services can also cause conflict," he said.

NSN, meanwhile, which will be the largest contributor to post-Microsoft Nokia's coffers, is coming to the end of a two-year transformation process that has seen deep cuts made to headcount and a withdrawal from less profitable countries and contracts.

"While we are absolutely not satisfied with our topline performance, the decline needs to be put in the context of our overall evolution," NSN CEO Rajeev Suri said on Tuesday. The company's operating profit fell 10 percent year on year, while sales declined 26 percent.

"2012 was a year of deep restructuring with sharp reductions in personnel and other costs across the company. 2013 has been about transforming how we operate in driving permanent structural improvements while also completing some further restructuring actions. Bluntly put, over the past two years our priority has been fixing operational issues sharpening our portfolio and building a strong financial position."

NSN will in future look towards LTE as a growth area, and is also putting more "R&D muscle" behind small cells, packet core, network management software and other areas.

Nokia's board is currently in the process of determining the corporate strategy for Advanced Technologies, NSN and Here, and expects to publish more details before the closing of the deal with Microsoft.

Further reading

Topics: Mobility, Networking, Patents, EU

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8 comments
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  • Yes they will get rid of unprofitable division

    But what about the potential?
    The biggest IT companies are making more money from smartphones than anything else. Samsung a country size company makes more profit selling smarphones than all the rest, and all the rest are TV sets, ships, cars, nuclear plants, ...

    Here maps is on the way down, I doubt the future of mapping is something like that, people having a smartphone and/or tablet running android or iOS will probably want to have a similar experience in their cars, home, ... I don't see future on map technology that doesn't make part of a huge ecosystem.
    Cars will probably implement something like MirrorLink to connect to tablets or smartphones, why duplicate features?!

    NSN is doing ok, but I doubt for how long they can keep it, Chinese competition will be tough in a commodity market.

    Nokia can be a profitable company for a long time to come, but going the way is stated in the article they will becoming a small company that nobody will talk about in a few years.
    AleMartin
    • Same thing happened to Motorola

      Motorola held 25% of the cell phone market in 2007, Motorola's largest money maker at the time. Then they lost the lead, so Motorola split into Motorola Solutions, and Motorola Mobile.

      Solutions made profits year after year, while Mobile (with it's "all Android" course) slipped down to just 2% of the market and profit loss, quarter after quarter, at which time Motorola sold off it's Mobile to Google.

      After that, it seems that Motorola Solutions continues to do well, and continues to grow.
      William.Farrel
  • "unlicensed" companies?

    Is Nokia going into the patent trolling business?
    John L. Ries
    • No...

      However they will be protecting their patented intellectual property.
      NoAxToGrind
      • How come they weren't "protecting" it already?

        And how much of an invention is it really if it is frequently reproduced on accident by third parties?
        John L. Ries
    • No.

      Only companies that steal their IP without licensing it, mototrola and scroogle.
      hoppmang
  • Nokia going in wrong irection - towards Redmond, Washington, USA

    Some of the statements and projected future business coming from the "new" Nokia Hierarchy is just as devoid of any concrete reasoning in regard to technologies being adopted or advanced technologies being developed - none of which are Microsoft based, which is the apparent preference for the (supposedly) "independent" Nokia.

    Just this week I have learned of both Cisco and Broadcom's serious cash and technology investments in Android and Linux foundation technologies, and within the past month Huawei, ZTE and other Chinese technology behemoth have 'officially' stated their mobile and enterprise software infrastructure with UNIX/Linux.

    No doubt, as has been proven, all the recent scandals in most cases of USA snooping on foreign governments and particularly corporations as result of calamitous weaknesses in Microsoft software has contributed to faster move away from Redmond base software, while Nokia prefer to swim against the tide and common sense, as well as against superior technology.
    wanderson
  • code speak for sueing everyone.

    near as I can tell, without the devices division, Nokia will just become a patent troll.

    anyone using a mapping service that isn't nokia will probably get sued, and anyone not paying them for nokia mobile patents will get sued..

    how sad that a once great company whose products I bought for many years (my 6110 was my favorite phone for a very long time) is most profitable when reduced to being just another patent troll.
    frankieh