Q4 2020 Nokia Oyj Earnings Presentation
Hello, and welcome to the Nokia fourth quarter and full year 2020 earnings teleconference. In video call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star Keith All led by zero. After today's presentation, there will be an opportunity to ask questions. If you are also viewing the video webcast.
Please remember to meet the audio on your computer before asking your question is there is a 32nd delay to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note that this event is being reported I would now like to turn the conference over to Mr. Matt <unk> head of Investor Relations, Sir you may begin.
Ladies and gentlemen, welcome to Nokia fourth quarter, and full year 2020 conference call I'm.
I'm, Matt smell head of Nokia Investor Relations, Pekka, Lundmark, President and CEO of Nokia and market winner CFO of Nokia are here with me via teleconference and video today.
During this call, we'll be making forward looking statements regarding our future business and financial performance. These statements are predictions that involve risks and uncertainties actual results may therefore differ materially from the results. We currently expect factors that could cause such differences can be both external as well as internal operating factors.
Such risks in more detail in the section titled operating and financial review and prospects risk factors of our 2019 annual report on form 20-F, our financial report for Q1 published on April 30th on form 6K, as well as our other filings with the U S Securities and Exchange Commission.
Please note that our results release, the complete report with tables and the presentation on our website include non are fresh and comparable results information. In addition to the reported results information our.
Our complete financial report with tables available on our website includes a detailed explanation of the content of the non Air Force information and the reconciliation between the non air for Us and the reported information.
A day stock exchange release and presentation can be found on the Investor Relations section of the Nokia website.
With that I would now like to turn the call over to Pekka.
Okay.
Thank you very much Matt then that day or investors.
Welcome to join Us today.
Hi, Matt.
Happy to report that we had a solid Q4 and 2002.
And actually as you will have seen where we came in at the high end of our previously communicated outlook range.
The Nokia level non I FRS.
As a result, both gross margin and operating margin.
They're.
Healthy on day, where they were up a non.
Non <unk> operating margin was 16.6% and that was up 20 basis points and then of course for the full year. The increase was bigger we came in at nine 7% than the previous.
Previous year was 8.6% unless you have seen our gross margin development pretty good none I as far as gross margin 41, 8% for the quarter and.
40% a day.
Before.
This was.
Driven by first of all.
Regional mix shift towards higher margin North American market. It was also driven by a lot of R&D.
R&D airports day enhanced product quality and cost competitiveness and this is of course pretty deep.
Encouraging all of them.
Most of these force in the networks business and then of course, they supposed to last year now when we report in this truck show in networks is one business. This year, we will assume a little bit deeper into the different components of the networks business.
What we would like to highlight is that Q4.
Operating profit benefit did about $250 million from two driver. So I don't know $50 million early payment and then.
<unk> million from Nokia venture fund valuation that medical Bill talk about a bit more in detail.
And if you turn on or kind of calculate that and how much. The EPS effect out of these two items would have been it would have been three and half cents.
We also reiterate the Dow really would be on our 2021 operating margin outlook. So we keep the seven to 10.
Margin forecast for this year.
And then one important thing to note, which Michael will talk more about this that we.
We have one pretty watch item a day recognition of.
Oh tax asset in Q4, which Michael will talk about that.
Set.
Then if I I mean that force so very quick high level summary of the result itself and now I would like to mobile where it to.
A little bit more do you think it was a nice start with the regional banks.
Picture in the regional.
C creation and then of course when you look at this picture here you see that clearly the the fall in there of the quarter was the North American market.
For the group are our full year sales were down 5% for the quote their day.
Mostly because of currencies and cornerstone currencies are the quarter was 1% pop and then of course for full year 2020, we cannot be happy with the fact that we were down 6% on reported they've done that 4% constant currency, but once again in Q4 before Matt was Kilian North American region, where we are.
Had 11 percentage point, they had done a 19% USD <unk> constant currency growth.
This partially reflects a day they recognize net sales oh. So also the items that I highlighted net $50 million earlier this year earlier, but in general of course this is pretty strong.
The pharmacy.
Our second largest market Europe remained flat.
In constant currency it was up 2%.
One thing that is important to note I'm done, which is partially driving the European market. This is the swap opportunities due to geopolitical issues and a majority of this.
Opportunities are in Europe, there are some deals in other parts of the world as well, but we believe that we have won to date around half of the value of such a deal and this of course supports our business.
Including especially specifics, including in Europe. What is important then of course from margin point of view is that when you have a swap deal like some of the ones that we have recently won.
Typically in the beginning in the early stages of that deal first your sometimes to the margins are lower and then they pick up when you go further.
The other regions are of course are smaller for US there we have had some headwinds.
In China, we have clearly lost market share there is no question about that.
In the other parts, it's not that much of market share question. There are some tough comparables as you can see in Asia Pacific in Q4 last year.
So the rock within deal in Japan, and also in Middle East Africa.
Africa, because of the strong deliveries to Saudi Arabia, a year ago, So fairly stable in these parts of the world, but of course in Latin America. The important thing to keep track on it so of course, the overall economy and the Covid situation, which has clearly delayed some of the investments that would otherwise have.
<unk> place in that.
Market.
So overall.
Solid performance by most of our agents.
And then I.
I move on to this.
The structure of the customers that we have and.
Of course.
C S b, it's not clearly our largest customer group.
Over 80%, but.
The growth.
It's increasingly on the enterprise side, we can roughly Matt now I simply by quite a lot, but in general we can expect that our that the C. S. P market will remain flattish of course, there are structural change. He is like from a fortunate to find you and so on but the overall market. It is flattish, but the enterprise market. This is it is.
Expect it to grow close to a double digit.
Over several years to come so this is clearly.
One place, where we wanted to find growth and we are finding it we had full year.
Sales growth, 14% in constant currency and we have a healthy pipeline.
Of the new.
Opportunities are we 179, new customers in Q4 interest.
83 in Q3, we have currently.
260, private wireless customers of course, the enterprise business is not the only private wireless we are selling a lot of routing and fixed Texas products to these customers as well.
This is a promising case and a couple of highlights perhaps worth mentioning wireless private wireless partnerships with both AT&T and Verizon that we published during the quarter. So overall solid job and great promise in this segment, which will be further driven by then deep.
Next steps in that in a way that mission critical networks serious industrial digitalization and that is gradually taking speed. So we.
We really believe that we will be in the heart of the fourth industrial revolution to our and depressed position, which is at a day now a solid one with the good.
Potential for the future.
Cash flow is.
Of course, an extremely important measure and Michael will talk a bit more about that digest highlights that we had $2 5 billion euros net cash at the end of the year. Here also just because we just want to be as transparent as possible. We do want to highlight that in the very last day sales.
The year, we had a 500 million payment from a customer sometimes one day or two can make a difference had it been done on the on the January side. The end result today would have been the same but then they speak up would have been $2 billion instead of 2.5.
You will also have seen net the boards.
Proposal that there would be no dividend for the financial year 2000.
20, and this is also something that Michael will address in a bit more detail in a moment.
Then I move to the next angle to the perform I send that extend the business specific performance.
And I start from the largest business, which is a which is networks and again, then again reminding ourselves. So the fact that this is the last quarter. When we report using this type of a unit called networks.
But overall, we had 7% our reported on 2% constant currency Q4 sales decline on that constant currency decline was 5% for the for the full year.
This decline was in Q4, mainly driven by mobile access and optical networks and mobile access not buy the products, but but.
More by deployment.
Services.
This is important to note the product part actually did pretty well in Q4, IP routing and fixed access net sales grew on a constant currency basis and declined on a reported basis.
And we.
We had a 280 basis points of gross margin improvement in the networks business, primarily due to the progress in mobile access and here I would like to highlight the promising progress that we that we have made in five G product cost reductions I'll come back to that in a second.
Which is of course, something that will carry us all so oh, sorry in the future because the product development in five G has been actually delivering in a pretty promising.
Minor operating profit decreased somewhat due to some of our some of the loss allowances send a project a project the cost allow them space that we have put on the balance sheet at the end of the quarter.
And once again this business benefited positively about net 50 million at the end of the quarter from from this timing timing ultra a transaction with one particular customer.
One thing to note for the network business going forward, what is the global component market citrus somewhere theres been a lot of talk about shortly that use some of that is highlighted by the carmakers are we believe that our situation is manageable, but it requires a lot of attention there are here and there some.
Point to point, a deliberate risks in a Q1 nothing that would change the big picture, but this is something that that business is not paying a lot of attention to we are intensifying. Our context, then discussions with the key vendors.
Discussing four costs reservations are inventories and everything.
This is something that will most likely be there. This is not the Nokia specific issue in any way, but they were old issue for the next year or too difficult to say exactly where it will all lead to but requires a lot of attention.
Than inside the networks business.
Couple of comments on mobile access first I already mentioned that we had clear improvements on the product side, but they'll still end up in the Q4 and full year result, you just shrunk our competitiveness and cost position of mobile radio.
As I said the topline challenge in this business did not come from the product side. It's from the deployment services side, we had a growth in radio access products in in Q4, and also full year and the five G growth was partially offset by decrease.
And like I said radio access products.
Five James gross margin was up due to product cost reduction partly helped by higher reef shark volume sand are these Israeli important then also encouraging that we actually increased our own targets or exceeded our own target on reef shark.
43%, what's the share of.
Deliveries in Q4, when our earlier communicated target where 75% than we are reiterating the target of 70% at the end of this year, and then 100% that day and Oh.
Next year. So this gives us confidence the confidence that a day turnaround.
Which started already a year a year and half.
Go east on the right track, but however, there is still obviously with a lot of work to do and as Ive said earlier one of the important things, which then also will be reflected in this yes mobile networks or southeast that we will continue to invest we will actually increase our R&D investment to.
Make sure that we repeat the success of <unk> also in a five.
Our five year conversion rate, excluding China is currently at 90% and that's negatively impacted by a our market share development in North America. This is a bit controversial because our 2020 and at the end of 2020 as you saw we had strong growth in North America, but now.
Now going into this year exactly as we have highlighted earlier, we are facing some headwinds.
In mobile networks in terms of the top line.
So North America, and also China, and then there is safe.
Price erosion challenge also that we are facing at the combined effect of all of this will lead to this year <unk> to this earlier communicated zero expected comparable operating profit for the new mobile networks business.
But market share wise again on balance.
<unk> five <unk> market share.
In 2020, excluding China, we estimate that 27% to 28% and now.
For this year, we are targeting 25% to 27% market share. So it's not that dramatic cut steel they already say shut they a small drop we.
We have currently 195 commercial five day engagements, including paid trials and 45 five G are alive five G in networks.
You will have noted some of the recent highlights the five G. A deal with the T Mobile U S. Federal five G. As cyber security project cloud Native core software deal with them one in Singapore and many many more I don't have time to go through all of them at the moment.
Yeah.
We noted.
In the outlook assumptions as a continuation of what we had said earlier about the profitability of this business. This year that are that there will be a significant decline in top line of this business they share and that is one key reason why the profitability is so challenging it is important to highlight this because the reason for that.
Expected.
Zero comparable operating margin in mobile networks. This year is not our technology competitiveness, which is improving quickly. It is some customers early have made decisions about the market shifts which will affect our top line in 'twenty 'twenty one.
Then to the next business in networks, which is a fixed access.
I'm quite encouraged by this Jason in this business, we had a 5% decrease in reported net sales of about 1% to growth.
In constant currencies, a decrease because of copper access and services, but then there is pretty strong growth in digital home and fiber access.
And the interesting detail about this business, which is very important is that we had record high order book for this business at the end of the year and when it comes to technology, We launched our 25 G. PON passive optical network technology, which has received an excellent.
The reception on the market.
There's a lot of customers, who consider deployments of 25 G.
Solution on sand just as one highlight our one large customer AT&T recently joined the 25 G PON MSA and industrial organization to promote then accelerate twenty-five J. Paul This is a technology, where we currently have roughly speaking and believe that we have 18 months.
Advantage to the closest competitor.
IP routing is of course, a great business.
We had actually topline wise the best quarter.
Quarter.
Seems a.
The Alcatel Lucent acquisition.
We had on constant currency basis.
An increase in top line of 5% and that makes this quarter higher than the year before if you take it on a constant currency basis.
We had a lot of Kiwi and Sandra and of course the day Nah.
F before routing a silicon the platform is the key technology driver and they sent a we have a had a lot of windstream simply Deutsche Telekom theologian, Canada Ilene to four in Indonesia, and and then California based data.
Networking or our data center and Internet Service company Equinix are global companies are some of the examples of these wins.
In short we are well placed for the next.
Next steps in IP routing business going into 2021, and obviously, obviously you have not seen everything on the product side yet.
Optical networks had a challenging year.
Your from Anne day quarter from top line perspective, our Q4 last year was a really tough comparison as you can see here, but we were down 10% even in constant currency.
Also here are even though this business has had its share of challenges.
There is now a promising developments on the technology side, we have launched our weight fabric elements our portfolio with the P. S. C. Five and then the Iranian acquisition all supporting.
The development into.
Into 2021 and beyond so we do expect a improvement in this business. This year and then going forward as well.
Yeah.
Then.
The next businesses our software business.
Great, 5% constant currency sales growth in the quarter, a reported basis. Unfortunately, because of currency decreased by 1% a great and solid 2021 order book and several cloud core wins, including a soft.
Bank and one thing I would like to highlight this in January which of course is after the reporting.
Indeed, we announced yourself to a partnership with Google to jointly develop cloud native five G core solutions for C. S. P sand enterprises.
So the comprehensiveness of our cloud native multi vendor multi network portfolio continues to give us a strong position in the telco software market.
And finally, then Nokia technologies, a 2% increase.
Increase.
In our net sales and 3% in constant currencies.
This growth was primarily due to patent licensing and higher catch up net chance from a renewed patent licensing agreement that would deliver it in a Q4 of course full year sales decreased.
I'm, a little bit largely due to a reduction in brand licensing revenue and and set them one offs brand licensing revenue, mostly because of.
They declined a handset market because of COVID-19.
Yeah.
We have increased our R&D expense is up a little bit AR to continue to develop our intellectual property portfolio and to maintain it and and this is also something that are that we are focusing on in the future not only monetizing the portfolio that way.
Currently have but but are really taking advantage of our research organization are the facts that are that we have already now a 1300 on 50 declared five G essential bad debts, and then ongoing expansion to new areas such as a consumer.
Our products are Iot solutions going forward automotive segment.
Yeah.
So this is a pretty.
Pretty solid performance in this business as well.
Yeah.
And then before I hand, it over to Mark up a couple of comments on the leadership team and the operational model.
The old leadership team was 17 members are now.
The new one will be 11, and it's almost complete and now there's only one.
<unk> appointment still to be made which in the pipeline, which is our chief Corporate Affairs officer, but everything else is now in.
In place. This organization has to be an effective now for one month. So it's of course very early stage a fundamental principle here is of course full P&L accountability to the businesses.
Our businesses are led by our business group. The precedent. This does of course not to mean that these businesses would operate in silos in the customer interface and that's why we have our customer experience organization led by Ricky Corker, who is responsible for the account teams that are facing the customer.
But this should not be mixed with the P&L responsibility, which is very clear it is.
In the Bee Gees led by the BHA precedent and other.
Very important details that I want to highlight here is the appointment of Nissan backdrop.
Our chief said that channel.
Technology L P. Sir.
His task is really to drive our technologies said that she across businesses challenge businesses in terms of technology, but also then take care of our network architecture, and our product architecture across businesses and a very importantly to drive our long term.
Research, including a battle ups. This whole thing that we have done to the organization and the operational model Lisa major simplification from the previous one as I have said before just one example in the previous model a fairly simple mobile access deal required five mm management team members.
To participate are now it is only one and that simplifies things.
Lately.
Then I actually believe that this is enough for for my but Michael Weil now Oh go through the financials in more detail and then after that we are ready for your questions. So now I'm happy to hand over to you Michael Thank you.
So much and Hello from my side as well.
Matt there's basically four areas that I would like to cover with you today and I will start with them at group common and others and and then go over to the cash position and liquidity position at the end of the year.
And then explain a little bit more about the recognition of the finished DTA deferred tax asset.
Matt that impacted our reported results.
And then finally I will close with some comments about solid 'twenty one guidance.
So if we start with the group common and and.
And just starting here that yeah, we had a very strong year on year net sales growth and this was actually second quarter enroll.
And the main driver here was the a S N Alcatel submarine networks and and if you remember already in Q3, they started them a very good path and and this continued in Q4 a small.
And just to point.
Point out here that are due to Covid, we had had to close our factories in Alcatel submarine networks and that affected heavily they are business and volumes as well.
And now when the factories have been reopened and they have been able to deliver occurring as well.
The other thing that I would like to highlight on the a S. N side is as well that that they have at first of all day a market leader today in the business and the order book is extremely good at one point 75 billion at the end of 'twenty journey.
And of course.
We believe that we can continue a good development what comes to topline during 'twenty, one as well.
Then another item that I would like to highlight the group common and that's the 100 million impact that we got that just in the end of the year.
As we have the venture fund.
In Nokia and that fund is investing in different funds and in those funds. They were three ipos and at those shares hiked quite well.
Remarkably in in latter part of them are Europe and EM.
And that's why we've got this 100 million extra.
Extra boost in all our operating profit as well.
And.
If I go into the.
And net cash a part and I'm.
Just wanted to give you a little bit more flavor on on the cash flow development.
Just like Pekka already mentioned.
We had a 500 million early payment that bus D. In actually in Q1 chooses to any one but that came in actually last day of the year in all bank accounts.
And that of course that helped our cash flow towards the end of the year, but also it impacted positively our net working capital.
Although net booking capital increased a little bit 50 million euros in Q4, and if you look the big items here, we had receivables increase one by 111 1.1 billion Euro and of course. This is quite typical in our business because we have seasonality.
Where a lot of those sales are quite back end heavy and to watch the end of the year and then of course I want to mention as well that we've been reducing our tullow modal sale of receivables.
And this was offset by that we had about a 500 million decreasing inventories.
And this is also seasonal impact because a lot of shipments go out in in led let a part of the year, but also we had some component.
Lead time issues, and and that affected inventories a little bit as well.
And then we had about $600 million increase in liabilities.
And that ended that a free cash flow in quarter four was almost 800 million.
And for the full year. It was one point 35 billion.
And.
Of course this was affected by the 500 million yearly payment that we got and that's why we exceed adult so the guidance that we had given to you earlier.
And.
If we look a little bit more about the liquidity position and also all depths at portfolio.
Yeah first of all.
Look net cash at 2.5 billion at the end of the year and that's a quarter on quarter increase of about 600 million and a total cash is $8 1 billion and that's about $400 million increased quarter on quarter.
And in.
In addition to the cash position I would say that we have about 1.5 billion Undrawn rfps, which are sustainably linked as well.
And in addition that if we look to the right hand side of the.
The slide you can see that we have quite well balanced and depth portfolio.
And this year, we have a maturity of 350 million and that actually is something that we already are working on and we will redeem that one month before the due date. The due date easing in March but we will do this already in February.
Otherwise our next year, we have is 400 million bond maturity at but all of all if we look at the maturity profile at the average tenure is about a 5.5 years and the average interest is approximately 2%.
So I would say, it's quite undemanding and well balanced and I'll see if we looked to spread.
Between different sources, you see that we have both euro and U S bonds. We had noted in European investment bank loans as well.
So if we go to.
The DTA deferred tax asset issue.
And this is net in the finished legal entities.
And this is only a M.
Rounding at technicality, so it doesn't impact cash but of course, we have to book that in our reported numbers.
I would like to highlight also that the tax asset itself is not lost so we can still utilize that in the future, but it's just that according to rules accounting rules blend we have a cumulative loss position.
Among the months at.
Then we have to book they said no.
The tax asset away from our balance sheet.
And them.
And this is the reason why why we've done this now.
It doesn't reflect the future of off the results it's backward looking.
So I just want to highlight that as well.
That is in light of this we also have given a little bit more highlight or on a on the tax expenses. So in choosing to any one we expect about 450 million taxing expenses and we believe that the longer term this will be about the same.
Lim.
Level S ball.
And remember that on quota.
Quarterly basis, these will vary because of.
Matt different.
Nixon the profits from different countries and difficult frees have different tax rates.
And also the timing of the patent license and cash flow and related withholding tax. So these are the reasons.
And if you look also at the full year 'twenty one outlook.
First starting with the net sales and operating profit.
Net sales guidance that we have given now there is little bit different than what we have given before now we have assumed that year and a euro USD rate, which was $1 23.
And yet if you look to the average rate that we had interest in 'twenty. It was one point 14, and just you have to understand that if we.
We would have a 114.
Matt in that in our books and if the year end rate one point to three would have been valid throughout the whole year that would have had almost 800 million negative impact on our top line. So you understand.
The magnitude of all of the currency and in U S doors.
And otherwise I would say that we have quite balanced.
Our cost and sales in in them in different currencies.
Now we have about 55% of our sales is in USD currencies and about 50% is in the cost side.
In euros its journey on the sales side and 25 on the cost side and then other currencies are a balanced as well.
So it's quite well balanced.
When it comes to the FX.
And when it comes to net sales again, we will have a significant a decline in mobile networks, just like Pekka mentioned already and this is the fact that not all full Chee koon.
Contracts.
It will be converted into five chi.
And also we see some price pressure in North America.
Then we see a CRO in in networks infrastructure, and Nokia technologies, which is offsetting that.
This decline in mobile networks.
And if we look at the FX again just.
Some kind of a rule of thumb you can't see that if we have a 10.
10% increase in Euro USD yeah.
That would give it about 45% negative impact on the topline.
And quite neutral impact on the operating profit side.
And.
What comes to the operating profit guidance, we keep all previous guidance, Peter being 7% to 10%.
And of course key drivers here again or the challenging environment in North America, specifically on.
Mobile networks side.
And then we will increase the R&D investments in the five Chi and then of course, there's some uncertainties due to COVID-19 swap.
And if you look the.
Outlook for cash and dividend, we guide on free cash flow basis, a positive cash flow.
And we will give more information about this at the capital markets Day S wallet.
Capex is estimated to be a little bit higher about 700 million and it is basically two drivers here. One is that we will have little bit more capex on the real estate side, and then we will invest a little bit more on the Alcatel submarine networks side.
To be able to deliver that that big.
Big Order book that we have an hour at the end of last.
Last year, so we have to increase the capacity a little bit.
And just like Pekka mentioned already also the board is proposing no dividend based on Tuesday 20, yeah.
<unk>.
And.
Just giving you some flavor board is very pleased to see the operational performance that we have and also the cash Ah peformance at and we have strengthened our cash position, but of course, because we want to secure that we can increase our investments in five chi, but also other strategic error.
Yes.
Yeah, and secure that we continue with a very good track record on sustainable cash generation that board decided not to give any dividend.
And of course after this year again board will make a new assessment as normal.
<unk> practices.
And I also want to assure you that we are assisting our current dividend policy and we indicated early as well that had the couple of Marcus day, We will give you more information about the dividend policy.
And just wanted to give you the.
A reminder, that we have a capital markets day on March 18th.
And you'll all welcomed and definitely hope that he can colinas wall.
And we will focus on a much more on them.
The different businesses gave more light into the disciplined portfolio management.
Off those piece disease, and the clear path for value creation for.
For business as well.
And that also that we want to give you more information about the turnaround in mobile networks in which steps we are taking going forward.
And maintaining the strength in net for infrastructure and and a clear path to maintain the technological leadership in IP routing and related market share gains are small.
Also what comes to the cloud and network services.
The bulk of it comes to C S P and enterprise markets.
<unk> at value creation path for that business as well.
And of course.
We will.
Give you some some more light on the sustainable technology licensing.
And.
I really hope that you will get the information you you expect in and have opportunity call in with that I would like to now hand over to Matt for Q&A.
Thank you Marco for the Q&A session. Please limit yourself to one question only as a courtesy to everyone else in the queue.
Please go ahead.
Thank you and we will now begin the question and answer session. If you're also viewing the video webcast. Please remember to mute the audio on your computer before asking your question.
Second delay to ask your question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the roster.
My first question today will come from Andrew Gardiner with Barclays Barclays. Please go ahead.
Thanks, very much good afternoon.
There have been too.
Go into a little bit more detail on some of the comments you made on the mobile market share and the and therefore the revenue you expect within the mobile access business. So.
Pekka you said that you expect to drop from about 27% to 28% <unk> market share ex China last year to 25% to 27% this year.
And I suppose if I sort of.
Then think about what is expected for the mobile access market.
That's going to grow this year quite clearly given five G led by China, but I think even.
Even without that with North America, and Europe, it should be growing by low single digits.
And so if I can say youll slight market, a slight market growth offset by your market share pressure in the middle of the range I get to something around a low single digit decline maybe it's mid single digit when we considered the FX headwinds you guys face.
It sounds however, when you talk about significant decline levels.
It's more than that.
Can you can you give us a bit more detail.
Do you think youre facing more price pressure than others, given some of the technology issues you faced in the past just a bit more detail in terms of what specifically you're expecting in in mobile networks revenue would be helpful. Thank you.
Okay. Okay. Thank you I mean that that's of course served one of the most essential our questions and issues that we are facing facing these share if I comment market share first our expectation is clearly that are in China did North America. This year, we will have a lower market share and of course that 25% to 27% that you refer.
That's excluding China, but then overall when you when we take top line of course, China is in that game as well.
We do not.
I believe that our that we would be facing a situation, where we would have to sell our product are cheaper than our competitors. There is price erosion in the market. We certainly do not want to be the one who would be driving prices down but it is reality that the prices are eroding and day price.
Erosion is stronger in the north American market that than it is in other parts of the world. So from that point of view.
The top line and then it comes to the definition of this are significant there are three components. There is the there is.
Volume, which is driven by a buy market share.
Then there is price erosion, which together with volume drives topline and then on top of that there is the currency headwind, which is actually going to be quite significant they share. So these three components together.
And up dip a significant then of course.
What you should note that and hopefully this is then that the.
The positive side of the stories that are that when you take our guy.
Guidance for top line group top line this year and we are not guiding any midpoint, so anything like that but just for the sake of argument. If you mathematically take the midpoint and then eliminates the effect of of currency headwind.
That would delay it to roughly flat top line for the group this year, which would mean that then then.
Excluding currency effects the other businesses would actually compensate for the for that drop in mobile networks our topline.
Thank you for your question Andrew Cole next question. Please.
And our next question will come from Sami <unk> Nordea markets. Please go ahead.
Hi, Thanks, I wanted to understand better what happened in Q4 with regards to your product mix at our mobile access at the <unk>.
Third quarter, you were prepared for a lower share of reef shark based sales in Q4.
This was not the case as you benefited from earlier than anticipated product releases are you running ahead of your targets thinking off classes the margin transition and wants to hire 50 million Euro tailwind from our early revenue recognition remember this Matt.
Not.
Thank you. Thank you Sami the Hunter net $50 million million thing is unrelated to today's my that was the customer customer specific issue.
I would not draw the conclusion that day 43 per cent a share would it be an indication of the overall program are being ahead of our targets we maintained the 70% target.
By the end of the share on 100% target by the end of next year. This percentage is jump up and down always dependent on on the mixture of a customer deliberate seem that a specific quarter or actually the way. Its misheard is deliveries from the factory to customer.
But then there is a further delay often six months between that event and then until the revenue is recognized.
After its typically installed then take commission then taken into use that's when the revenue is recognized so I know that there is a temptation to draw that conclusion, but but.
That would.
It would be pushing it a little bit.
Thank you Sammy.
Coal next question please.
And our next question will come from Alex Duval with Goldman Sachs. Please go ahead.
Yes, good afternoon, everyone and thank you for the question you, obviously had solid cash generation in the quarter relative to your prior guidance, even with a 500 million early payments of cash just wondering if you could expand a bit more as to why you called that early payment and then also it would be interesting to know in terms of the underlying improved.
Which was better than expected what would the main operational drivers and how sustainable is that as we look forward to the coming year.
Yeah. Thank you very good point on and.
Matt I would say the reason for this.
Early.
Payment from the customer side, which must deal in Q1 'twenty. One is only the you know.
The customer that I can actually answer that Kristen we didn't expect that it came in and it could be just banking days arrow here as well.
For the other parts I would say that and.
If you look at how we have been able to reduce the net working capital which is the main driver on on how how we can improve our efficiency in in collecting cash at two thirds of all the improvements that we've seen now in the latter part of the your AR is actually.
Totally coming from.
At higher efficiency on net working capital.
And only one third is coming from.
Volume based so I would say that that we have been able to increase at the day efficiency and in net working capital and we measure these and rotation days and we've seen that they have been improving.
Thank you Alex for the question Cold, we'll take the next question. Please.
And your next question will come from Alexander.
So a few day.
CIB. Please go ahead.
Yes, hi, good afternoon.
Thank you for the question I've, just got a question really on back to market share.
Timing of the.
The market share shifts that you see so if you help me understand I was thinking maybe China.
The loss was a 2020.
And then we don't have a further impact from China in 'twenty, one or am I mistaken.
Same for North America.
<unk> 21 impact we're going to be having this share loss are hampering growth in North America for four more years than just the current year.
And then obviously for Europe, you have some gains here have.
Don't already transpired and what we saw in the final quarter or is there more to come in 'twenty, one and beyond.
Yes, they are.
The overall market share, excluding China remember, there's 25% to 27% this year and 27% to 28% last year was excluding China. So that effect is eliminated clearly the negative driver. This year is North America, and then Europe is actually support.
This mitigating some of that negative effect, we have guided only this year's market share and it's actually very difficult difficult to.
Say anything yet about 'twenty two 'twenty three ways, we may be able to shed some light on this question of the capital market day, but there's still so many deals to be negotiated and hopefully one during this year that will then affect next year Center 2023, So Matt market share that are it's simply too early to.
Net debt.
Thank you Alex call next question. Please.
And our next question will come from David Mulholland with UBS. Please go ahead.
Hi, Thanks, it's following on from the last question I know, it's probably a bit early to try and touch on this but you know with what youre seeing in terms of your customer engagements.
Knowing the Verizon in North America issues are largely behind us.
Do you feel confident that you're holding your share in the rest of your North America base.
That's the case, we're not policy issues in China, and you're gaining share in Europe do you think that we will at the very least atrophic in terms of market share in 'twenty 'twenty one given the engagement you see with your customers with the product today or is it too early to tell how the confidence and you need to see a bit more of customer interaction and our success in winning this year.
Yeah.
We do need to see more customer customer interaction before we are able to say anything about 'twenty two 'twenty three market share of course of course some of the recent deal activity. There that we have had especially the ones that we have a published is promising but it's still too early to call and then of course when it comes to.
Individual customers customer names, including in North America, we we never comment individual customers speculations in terms of what they might do more of what they might not decide in the future. So into that we cannot unfortunately go. So it's still too early to call. It 22 O twenty-three in market share.
Thank you David for your question Colby I'll take the next one.
And the next question will come from Robert Sanders with Deutsche Bank. Please go ahead.
Yeah, Hi, good afternoon, I, just what I had a question about Europe. If you look at the historical ran share in Europe, 50% for the Chinese vendors in for gene.
Much of that share would you say is already up for grabs and five G and related to this after you complete the swaps you're doing do you think actually Europe could end up becoming a more attractive market for Matt from a pricing point of view all the time.
I do believe that Europe will be an attractive market, but but it's not possible I'm sorry to answer your question through any any numbers or anything like that we're not able to simply estimate.
<unk> that are that we are looking at our market share in Europe, which is a which is trending of a trending up are at the moment, but it is not.
Up to us to.
Speculate on where that would be coming from and then especially when it comes to the comments about geopolitics S. I have said earlier. We are we are a business. We're not politicians. So we are not quite dissipating in any political speculations we are focusing on our our business and what we are seeing and our customers and as I said, we have seen a C.
A N a positive market share trends in Europe.
Thank you Rob call next question. Please.
And our next question will come from Simon Leopold with Raymond James. Please go ahead.
Thanks for taking the question.
Wanted to see if maybe you could offer some thoughts on how the C band auction that's underway in the United States might affect Nokia. For example, there are some that are arguing that the money spent on the auction will reduce what operators will spend on the networks well other arguments are saying no. It demonstrates large intentions.
The spend and it's a good thing and on top of that I would like to get a better understanding of your product competitive positioning with mid band. Thank you.
Yeah, I mean, those are exactly the two ways to look at that thing, but but.
Hey look if some if somebody expense.
A lot of money on something makes a big investment.
Shouldn't that lead to a very high interest to do everything possible to maximize.
They they a day return on that investment and how do we maximize that return you'll need to maximize the spectrum efficiency, you'll need to maximize the investment into your service, which would indicate that it would be the latter one of the two out of 10.
It seems that we are that you are highlighting then when it comes to our product competitiveness in the C. Band now when we are are making quick progress on a Rev share count system on a system on chip. The we are seeing are seeing a pretty strong competitiveness when we complete their own Matt the during.
During this year so are we already.
Okay. Thank you Simon for your question.
Unfortunately, it looks like we won't be able to get through the entire Q. So cold we'll take our last question for today.
And that question will come from Peter Nielsen with APG. Please go ahead.
Thank you very much.
You made some comments that day.
You all.
Help improve your competitiveness on the site.
Could you elaborate a little bit on <unk>.
More specifically you feel sort of that you have improved your <unk> competitiveness and also has these encouraging Commons in turns juicy.
Made you believe that you can perhaps catch up a bit sooner than you had anticipated in and talk to us about about three months ago. Thank you.
Well, it's there there's no big difference to what we said three months ago, we were way, we're pretty confident in our ability to catch up back then and I would like to repeat that our confidence today, we are now or a day in the second month of 2021 and as I have said earlier 2020.
One is the year during which we believe that with all the relevant time significant parts. We will we will complete the catch up. So we are optimistic and this is of course, a I mean this is a matter of of both silicon custom and in some cases merchant silicon by then it's very much the software.
CHS and software functionality, there are clearly areas, where where we don't need any catch up anymore. We are we are a we're one of the leaders in one of the examples. This is clearly a clearly of end to end network slicing, which.
Cuts across the whole network and also cross for Gen. Five Gen makes it possible for operators to offer specific and the press enterprise specific slices when they are doing there in industrial applications and there's more there's more to come. So we we are we are approaching a sea change somewhere where various.
No need to talk about catch up anymore, but there is still lot of work still to do this year, but.
But as we get through this year I believe we will get there.
Thank you Peter Kurt.
And thank you to all of you for your questions today.
Thank you also pet and Marco.
Ladies and gentlemen, this concludes today's call I would like to remind you that during the call. Today, we have made a number of forward looking statements that involve risks and uncertainties.
Results may therefore differ materially from the results currently expected.
That could cause such differences can be both external and internal factors. We have identified these in more detail in the section titled operating and financial review and prospects risk factors of our 2019 annual report on form 20-F, our financial report for Q1 published on April 30th on form 6K as.
Well as our other filings with the U S Securities and Exchange Commission.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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Yeah.
Okay.
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