Nokia Becomes More Reliant On Licensing Business In Q3 2017

Nokia Corporation became more reliant on its licensing business over the course of the third quarter of the year, as revealed by its newly published consolidated financial report for the three-month period ending September 30th. The firm's wireless unit is still facing some near-term uncertainties, with its total sales amounting to €4.8 billion ($5.7 billion) in Q3 2017, nine percentage points down compared to the same period last year. The Ultra Broadband Networks unit was the main reason for the overall decline in this segment as some of its mobile networking initiatives were faced with more competitive challenges in Greater China and North America, as suggested by Nokia's latest financials. Many of the company's 5G investments aren't expected to start paying off until the turn of the decade and its presently declining network performance may hence continue for some time, at least in the context of total sales.

Apart from Nokia's long-term 5G commitments, additional wireless consolidations in the United States, China, and India may also hurt the company's prospects in the next several years, with the conglomerate expecting a decline of its network business between four to five percentage points by the end of the year on a constant currency basis. The network unit still improved its gross margin to 38.6 percent in Q3 2017 in a move that Nokia deemed "remarkable" given the current state of the market. In overall, the network business saw its operating profit drop to $395 million over the last period, a steep 23 percent decline year-on-year.

While Nokia projects it will bounce back once 5G deployment and related spending become more widespread, its licensing business is expected to provide the firm with some much-needed boost until that happens. Nokia Technologies — the unit which handles Nokia's licensing operations — recorded a revenue of $570 million in Q3 2017, 37 percent up compared to the same period in 2016 and while nearly half ($212 million) of that amount came from a patent settlement with LG Electronics, the overall performance of the division is expected to continue growing going forward, especially as HMD Global continues gaining more ground with its Nokia-branded Android smartphones. With licensing operations amounting to nearly pure profit, Nokia will possibly put an even larger focus on this segment until 5G opens new opportunities for the company in the global networking market several years from now.

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