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Nokia Still Recovering, Rebuilding After Microsoft Deal

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Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) was once known for its mobile phone segment, which Nokia chose to partner with Microsoft Corporation (NASDAQ:MSFT)’s Windows Phone to help try to put pressure on Android and the iPhone.  Unfortunately, the partnership provided little gain and progress for the companies and ultimately, Microsoft would end up buying Nokia’s mobile phone unit for $7.5 billion in April 2014.  As the segment was a money-losing problem for Nokia, it was a gift that they were able to unload the underperforming business and focus on more niche business operations.

Nokia derives majority of it’s sales from wireless networking business

Once a mobile phone maker, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) now derives 90% of its sales from its wireless networking business.  Operating profit for the wireless network segment is forecasted to fall between 8-11% of revenue over the long haul.  Analysts see the operating profit to rise to 10.8% next year and 10.6% in 2016.

Since the sale of its mobile phone business, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) CEO Rajeev Suri took over shortly after the sale was completed in May 2014, after being the head of the wireless networking division at Nokia.  Margins for the networking business are forecasted to come in around 11% for 2014, but potentially decline next year.  However, revenue continues to look strong for the networking business into 2015, Nokia additionally is forecasting increase in sales for its maps and patents division in 2015.

Nokia, China Mobile deal

However, it is not all organic growth that is driving the network business higher. [UPDATED] Nokia’s new CEO axed more than 25,000 jobs from the wireless networking division in order to help revive the business from losses and get it back on track.  The company did get a break in October 2014 after China Mobile Ltd. (ADR) (NYSE:CHL) announced that it would be ordering $970 million worth of next-gen “phone networking equipment, software and services through 2015”.  The company also recently got a break when Sprint Corporation (NYSE:S) approached Nokia to improve and expand its 4G network service.

According to Trefis, while networks business is the overwhelming majority of 52.2% of the stock, followed by licensing at 23.5%, and its maps business at 4.2%, rest in cash.  The company’s licensing business saw operating profit rise 17% last quarter and maps business continues to be in high demand for navigation.

Overall, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) was once the largest mobile phone manufacturer, but times changed and the company unloaded the burdensome business to Microsoft.  This may have been a huge turning point for Nokia, whose stock is up 25% in the past six months since selling its mobile business.  Nokia continues to cash in on its other cash cow business and continues to see decent growth figures and a return to profitability.  Very few people saw Nokia as potentially successful without the mobile business, but the company has certainly made some headway and continues to forecast earnings growth over the next several years.

Disclosure: None

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