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

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.
Written by Jo Best, Contributor

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.

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