& cplSiteName &

Nokia to Create Standalone Software Biz, Target New Verticals

Iain Morris

Nokia today said it would create a "significant" standalone software business and target new vertical markets worth €18 billion ($19.4 billion) annually, as it aims to buck a decline in its main addressable market.

The Finnish vendor said it wanted to move beyond its "product-attached software model" and set up a unit with the margin profile of large software companies.

While details of the new venture are still thin, two focus areas will be enterprise software and IoT platforms, Nokia Corp. (NYSE: NOK) revealed in a statement published this morning.

The Finnish vendor has had a bruising few quarters since completing its €15.6 billion ($16.8 billion) takeover of Alcatel-Lucent (NYSE: ALU) at the start of the year and expects conditions to remain tough in 2017.

Having already forecast that its main addressable market will decline by a "low single digit" percentage next year, Nokia served up further disappointment for investors, predicting that sales at its networks business -- which accounts for about 90% of the total -- will fall at the same rate. (See Nokia Forecasts Sales Decline in 2017, Shares Fall.)

Despite details of new strategic ambitions, investors took fright at the latest projections, sending Nokia's share price down 4% in morning trading in Helsinki.

Over the next five years, said the company, the main addressable market -- worth about €113 billion ($122 billion) this year -- will grow at a compound annual growth rate (CAGR) of about 1%.

However, Nokia believes it can grow its business faster by diversifying into new vertical markets worth about €18 billion ($19.4 billion) in sales this year and forecast to have a five-year CAGR of about 13%.

Those verticals include energy, transportation, the public sector, so-called "technological extra-large enterprises" and the web-scale players.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The company had revealed plans for a big push into the enterprise sector during a press briefing in London in September, indicating that it currently generates about €1 billion ($1.1 billion) annually from enterprise customers -- with 70-80% of that amount coming from the Alcatel-Lucent business. (See Nokia's Leprince Wants to Be King of Enterprise.)

The figure represents a small percentage of sales at Nokia's overall networks business, which made about €15.7 billion ($17 billion) in revenues in the first nine months of this year.

"We have an enterprise business that we want to scale beyond where it is today," said Igor Leprince, Nokia's executive vice president of global services, during the London briefing. "We want to focus on key enterprises so you will see us talking to web-scale players and banks -- people spending billions [of dollars] in capex."

Pursuing enterprise opportunities more vigorously could put Nokia in closer competition with IP equipment giant Cisco Systems Inc. (Nasdaq: CSCO), which generates the bulk of its sales from the enterprise sector and made about $48.7 billion in revenues in its last financial year (ending in July).

China's Huawei Technologies Co. Ltd. , which continues to increase overall sales despite the unfavorable climate, is also targeting expansion into the enterprise sector, having made about $4.3 billion from enterprise customers in 2015.

Signs of growing competition will obviously be welcomed by enterprise customers but could dent profitability among vendors active in the market.

Nokia is also guiding for an operating margin at its networks business of 8-10% in 2017, up from a forecast of 7-9% this year and a figure of 8% in the July-to-September quarter.

In the long term, however, it believes it can increase the margin to between 10% and 15%. If the market environment and its execution are in line with expectations, it says, the actual figure will be around the midpoint of this range.

"Nokia is extremely well-positioned to win in its primary market with communication service providers, and we aim to target superior returns through focused growth into more attractive adjacent markets where high-performance, end-to-end networks are increasingly in demand," said Rajeev Suri, Nokia's CEO, in a statement.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

(2)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
User Rank: Blogger
11/16/2016 | 3:12:10 AM
Main market growing in long run
The original version of this story said that Nokia's main addressable market would shrink at a CAGR of 1% over the next five years. It will actually increase at this rate. The article has now been updated. Apologies.
User Rank: Light Beer
11/15/2016 | 6:37:40 AM
Nokia again trying to penetrate the market
I am eagerly waiting for the new software. Nokia will again tries to penetrate the mobile market. This is my favorite mobile brand ever.
Featured Video
From The Founder
John Chambers is still as passionate about business and innovation as he ever was at Cisco, finds Steve Saunders.
Flash Poll
Upcoming Live Events
June 26, 2018, Nice, France
September 12, 2018, Los Angeles, CA
September 24-26, 2018, Westin Westminster, Denver
October 9, 2018, The Westin Times Square, New York
October 23, 2018, Georgia World Congress Centre, Atlanta, GA
November 7-8, 2018, London, United Kingdom
November 8, 2018, The Montcalm by Marble Arch, London
November 15, 2018, The Westin Times Square, New York
December 4-6, 2018, Lisbon, Portugal
All Upcoming Live Events
Hot Topics
Telco Job Prospects Go From Bad to Worse
Iain Morris, News Editor, 6/22/2018
Larry Ellison Laughed at the Cloud, Now the Cloud Is Laughing Back
Mitch Wagner, Executive Editor, Light Reading, 6/20/2018
Mavenir's Billion-Dollar Blueprint
Ray Le Maistre, Editor-in-Chief, 6/18/2018
5G Transport – Where Do We Start?
Ray Le Maistre, Editor-in-Chief, 6/21/2018
Animals with Phones
Backing Up Your Work Is Crucial Click Here
Live Digital Audio

A CSP's digital transformation involves so much more than technology. Crucial – and often most challenging – is the cultural transformation that goes along with it. As Sigma's Chief Technology Officer, Catherine Michel has extensive experience with technology as she leads the company's entire product portfolio and strategy. But she's also no stranger to merging technology and culture, having taken a company — Tribold — from inception to acquisition (by Sigma in 2013), and she continues to advise service providers on how to drive their own transformations. This impressive female leader and vocal advocate for other women in the industry will join Women in Comms for a live radio show to discuss all things digital transformation, including the cultural transformation that goes along with it.

Like Us on Facebook
Twitter Feed