Q3 2022 Nokia Oyj Earnings Call
Good morning, ladies and gentlemen, welcome to Nokia's third quarter 2022 results call I'm, David Mulholland head of Nokia Investor Relations and today with me as Pekka Lundmark, our president and CEO , along with Mark <unk> our CFO .
Before we get started a quick disclaimer. During this call we will be making forward looking statements regarding our future business and financial performance and these statements are predictions and involve risks and uncertainties.
<unk> results may therefore differ materially from the results. We currently expect factors.
Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on form 20-F, which is available on our Investor Relations website.
Within today's presentation references to growth rates will mostly be on a constant currency growth rate and margins will be on our report comparable reporting.
Please note that our Q3 report on a presentation that accompanies this call are published on our website.
The report includes both reported and comparable financial results and reconciliation between the two.
In terms of the agenda for today, Patrick will give you a quick over view of our financial and strategic progress in the quarter. Mark will then go into a bit more detail of some of the key factors impacting our financial performance along with our outlook for 2022 with that let me hand over to Pekka.
Yeah.
Thank you David and good morning, everybody.
The third quarter marked a very important step for our company and the execution of all the things that you said that you.
If you recall in the beginning of this year. We said we had completed a reset in 2021 and that's where we're moving it to accelerate in 2022 where we would focus on accelerating our sales growth and expanding our margins.
For the first half of this year the supply chain has really constrained desperate delivering lot that's trust, but that's where we start to see some improvements in the supply chain. We are also seeing good progress on growth.
In the third quarter, our growth accelerated to 6% year on year up from the 3% that's literally what I didn't catch it.
Importantly, this was driven by a strong improvement in mobile networks as we start to see benefits of our renewed competitiveness.
From a profitability perspective, our margins continued to be impacted by the timing effects of outstanding deals in Nokia technologies, which meant that our gross margin declined 40 basis points year on year, and our operating margin declined 120 basis points.
To better understand the margin progress in our business without the volatility the other timing Nokia technologies deals you can see on this slide the progress about gross margin and operating margin, both including and excluding Nokia technologies.
<unk> clearly illustrate the progress we are making in our underlying business without our operating margin up 70 basis points year over year in Q3 clean.
Clearly we remain focused on resolving the outstanding deals in Nokia technologies, but we are also focused on protecting the value of our patent portfolio over achieving any specific timeframe.
I will now turn to each of the business groups perform assays in more detail.
Starting with mobile networks.
You will know the challenges that impacted our financial performance and particularly our top line performance in 'twenty to 'twenty one.
But we are now really starting to see the benefits about your product Saturday nearest competitiveness.
We delivered 12% net sales growth in Q3, representing a strong acceleration.
We are starting to see some improvements in the supply chain, we did becoming less of a constraint on the business. We did benefit from an element of catch up sales in the quarter, which we could have shipped galleon that year, but the overriding point here is that we are not clearly.
On a path to grow on a full year basis in mobile metrics.
On top of the sales growth we have already we are already seeing we also signed some significant contract in India in Q3.
We bought it there tail, we've been awarded a 45% share of their planned <unk> network, continuing our long standing good partnership on top of that just this week, we announced the deal with reliance G O, where we will be a major supplier for their planned <unk> network deployments.
As you know we have not been in the radio access supplier to rely on G. O. Previously. So this is a very meaningful new customer engagements for us and an important market share gain we have stated previously that's our ambition is to grow faster than the market in mobile networks and to gain share and it is deals.
Like this which we believe will firmly put us on a path to deliver that.
Our margins also continued to improve in Q3 with operating margin up 250 basis points year over year. Although we did continue to benefit from a favorable regional mix in the quarter, which we expect will somewhat reverse in Q4.
Turning to network infrastructure, where we continued to see robust growth despite increasingly challenging comparisons.
This was particularly the case in our fixed networks business, which still delivered 7% growth.
We also continued to extend our technology leadership with the announcement of our lifespan M. F 14 platform earlier, this week, which gives us a clear road map all the way to West 50, <unk> hundred Qi solutions.
It will obviously be many years before these are in wider commercial use but it gives customers the confidence in our future roadmap for them to invest in today.
Our optical networks business still faces some specific supply chain constraints, but it's doing a good job managing the situation and demand remains strong.
We believe the supply situation should continue to improve through Q4 and into the first half of 2023.
In IP networks, we continue to progress well on our F 35 ramp up and are also making encouraging progress in the web scale.
And finally in summary networks, we continue to execute against its substantial backlog backlog of subsea fiber deployments.
While gross margin was stable operating margin for networking infrastructure was up 50 basis points due to operating leverage on fixed costs.
In cloud and network services, there was a slight decline in net sales, but we continue to make progress with our portfolio rebalancing.
Gross margin continued to show improvements expanding by 140 basis points, while our increased investments in private wireless meant that operating margin showed a decline of 210 basis points.
Yet we saw continued momentum in our enterprise solutions business, which grew at a double digit rate in the quarter.
Okay.
In Nokia technologies, there was good progress in their new growth areas, including in consumer electronics, and automotive, which have achieved more than 100 million euros in net sales over the last 12 months from being negligible in 2018.
The ongoing timing of contract renewals, we have referred to previously continues to adversely impact the quarter.
These renewals continues to progress and we remain confident in our ability to return to a run rate of one four to 155 billion euros. Once these renewal discussions have closed.
One of the biggest opportunities we have in the midterm is to grow our business B O N C. S piece into the enterprise segment.
We believe this will be the fastest growing portion of our addressable market and our products are increasingly compelling.
In recent quarters, we have highlighted how strong our order growth has been in Q3 I was pleased to see enterprise accelerate strongly delivering 22% growth in constant currency year over year supported by the improving supply chain situation.
We continue to have great momentum in the private wireless space, where we added another.
Where we added another 30 customers in Q3.
We are building the engagements we need without partner network to really scale this business for the future.
I should also mention that we signed a new web scale customer for our IP routing products in the quarter.
All of these points are very important for our longer term strategy as it's critical that we build momentum in enterprise to deliver on our longer term growth ambitions.
From what I have seen so far I'm confident this will remain our fastest growing customer segments overtime.
Yeah.
Two other topics I want to touch on before handing over to medical supply chain and how we plan to navigate the ongoing macro uncertainties.
On supply chain the situation is improving but remains tight in many areas of the business. It's now becoming less of a constraint in some areas, we were even able to catch up on some of our backlog from prior quarters.
However in other areas such as in optical networks, it's remains an issue.
So overall the picture is improving but we still believe it will not be before the first half of 2023 before there are no longer material constraints on any part of the business.
Finally, we fully recognize the ongoing macro and geopolitical uncertainty if anything that was uncertainty have increased in recent months. There is clearly a risk that this could start to impact the capex spending off some of our customers. However, as we look ahead to 2023.
Considering the significant ramp ups that are expected in regions like India, which are just beginning their fi journeys the ongoing fiber rollout, which is also now supported by a number of government funding programs and the opportunities we see in enterprise. We currently expect our addressable market will grow on a constant.
Currency basis.
Against this backdrop, we believe we are putting ourselves firmly on a path to outperform the market and gain market share.
Okay.
We will not become complacent and we will continue to evolve our plans that's the outlook for our end markets become clearer, but I'm talking today about what we are currently seeing from a bottom up perspective.
With that I'll hand over to Marco I look forward to your questions.
Thanks, Pat and Hello from my side as well.
If we now look a bit deeper into our financial results.
Group net sales growth accelerated in Q3 to 16% on reported basis and 6% at constant currency.
While FX had a clear positive impact on our net sales. We also saw constant currency growth across many of our regions.
Once again, we had a strong growth in North America, increasing 10% year over year as ongoing <unk> deployments in the region for double digit growth in mobile networks.
This was somewhat muted by network infrastructure, which declined mostly due to the fixed networks as continuous strength in fiber was not enough to offset declines in fixed wireless access.
Which is quite sensitive to a small number of customers.
In Europe net sales grew slightly in the quarter and excluding the impact from Nokia technologies, which is entirely reported in this region.
Europe would have grown at a double digit rate.
This launch sleep reflected strength in both mobile networks and network infrastructure.
Elsewhere, we saw a growth in Latin America, Troy to China, and Middle East and Africa.
Asia Pacific and India declined.
India was impacted by five cheese license timing.
With expected deployments to ramp up in the coming quarters.
If we then turn to profitability you can see the changes on the slide by business group in.
In mobile networks operating margin expanded by 250 basis points year over year as the strong net sales growth also translated into good margin expansion.
We continued to see a shift towards product sales and away from services and the business also had a strong regional mix in the quarter, which we do assume will become less favorable in the fourth quarter.
Net broke infrastructure continues the strong execution we've seen.
Over the past couple of years with operating margin up 50 basis points year over year.
And this is largely thanks to the growth we saw in the business.
Cloud and network services had a slight decline in profitability year over year, but this was due to the investments we are making into private wireless to ensure we capitalize on our early market leadership.
And we continue to see strong double digit growth in net sales in this area.
And we are confident these investments into both our competitiveness and go to market channels will pay off.
And on Nokia technologies.
And thanks of closing some outstanding deals continue to impact us in the quarter as well.
We have stated before we will prioritize making sure that we achieve the right deal instead of achieving specific timing such as by the end of the year.
In the Crook come on we saw a net positive impact from venture funds.
About 20 million of some underlying downward revaluations were offset by the continued strengthening of the U S. Dollar.
So overall, considering the progress of both mobile networks and it broke infrastructure, we delivered a good performance in terms of operating margins in quarter three.
And now turning to our cash before months, we generated 266 million euro or free cash flow in quarter three.
Outflows related to net working capital taxes, and restructurings were more than offset by adjusted profits.
Within net working capital, we saw a large movements across the individual components.
Inventories increased 480 million euro in the quarter as we continue to build inventory given the challenging supply chain environment.
And as we anticipate the ramp up of India <unk> deployments.
Receivables increased in the quarter, all of which was driven by a decrease off the sale of receivables.
Liabilities also increased which reflect the higher accounts payable and accruals for employee variable pay.
Once again, we saw outflows of around 200 million euros related to payments of our dividend and continuation of our share repurchase program.
In turn this has led to a net cash position of $4 7 billion euros at the end of quarter.
And now looking at our total addressable market. We have updated these just show our latest view across business groups.
While they have not been any major changes to any specific business Crook, we have seen some slight uplift across each which led to higher rounding off the overall addressable market to now be 5%, which is up from the previous 4%.
Pleasingly, we see a robust demand across markets.
Before turning to Q&A I want to touch briefly on our outlook for choosing 'twenty two.
Our full year net sales guidance remains unchanged in constant currency.
Flexing the Euro U S D. It right all the <unk>.
97.
At the end of September our net sales outlook is now $23 nine to 25.1 billion euros.
We have also reiterated our comparable operating margin guidance, which is expected to be between 11 to 13, 5%.
While risks remain around the timing of outstanding licensing deals is.
It seemed that these close we continue to track towards the higher end of our net sales range and towards the mid point of the comparable operating margin range.
We also updated to all our outflow assumptions today. The first one is financial income and expenses, which we now expect to be between 50, and 150 million euros. This year and over the longer term given the reason foreign exchange volatility and <unk>.
It's related impact.
And the second is around our Capex assumptions, we have lowered our expectation for this year to 600 million euros and continue to expect around 600 million euro over the longer term of course with some year to year variation.
So with that I will hand, it back to the David for Q&A.
Thank you Marco and Pecker few remarks before we move to the Q&A session. I just wanted to highlight that we will be hosting our next progress update presentation on the first of December a focus on our mobile networks business with some of you at though our president of mobile networks.
The event will be a hybrid event with the in person element hosted in London.
With that let's start the Q&A.
Courtesy to others in the queue could you. Please limit yourself to one question and a brief follow up Rachel could you. Please give the instructions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you're using a speaker fine please pick up your handset before pressing the keys to withdraw your question. Please press Star then two I'll now hand, the call back to David.
Thanks Rachel.
First question comes from Andrew Gardiner from Citi. Andrew. Please go ahead.
Good morning. Thank you good morning pick up more co as well I had a question for you on mobile networks. So you've got another good job in the quarter as you highlighted in terms of the margins.
Takes you to about nine 6% our operating margins for mobile networks on a year to date basis. Yet you said the full year Euro assumption still between six and a half a month and a half percent.
Even to get to the top end of that range would require a deterioration in four key which is something that normally see seasonally.
You have you just told us that your mix is changing so I can anticipate some of that.
But it feels like that guidance range looks particularly conservative given what you've already done on there on a year to date basis.
Is there anything we're missing that when you're trying to tell us what that margin range and what's implied for <unk>. Thank you.
Yeah. Thank you Andrew.
First of all I, just want to be very clear that that all midpoint guidance is on the group level and not on the individual be cheese.
And Jim and Jim.
Like you rightly pointed out as well that we've been performing quite.
Quite well when our margins so far within mobile networks.
But as we also stated clearly that we have had very good.
See a regional mix seen in mobile net broke so far in <unk> and in the fourth quarter, we actually believe that the mix will be less favorable compared to as we've seen now where the north American.
Yeah.
<unk> has been very strong.
So far in this year.
So this is the main reason that we are.
We are keeping our guidance assumption on the mobile networks and not changing that.
Thank you Andrew did you ever follow up.
Yeah, I mean, just as you say the midpoint of the range is for the group level.
It feels like your answer that yes.
In terms of mobile is clearly pointing us to the high end, but my ball range.
Yeah.
You see we only guide at the group level.
Keep some assumptions or B G. So we haven't given any detailed but as you see it you pointed out as well that that and year to date. The margin of mobile networks is these nine seven and iPhone six and.
And of course.
The less favorable regional mix will impact that.
In quarter four.
And that's why.
We we guide SPD.
Thank you Andrew and we will take our next question from Alexander <unk> from Societe Generale.
Oh, yes, good morning.
Good morning. Thank you. Thank you for the question I just have one and then a quick follow up so of the <unk>.
First one would be just to be very clear and I know I could I could work this out myself, but.
Your current 22 margin guidance is clearly contingent on a timely resolution of the ongoing licensing nickel.
Negotiations litigations.
Once it does this margin range look like if these do not resolve as you currently expect.
The San Francisco in Q4 hundred 42, 23, so just to give you.
You gave us what you think the margin will be not the case.
And then a quick follow up would it be a really just a broad outlook of 23.
You seem to be fairly confident on on growth there.
Which is positive can you also tell us if excluding technologies, which can be erratic obviously.
And there could be further licensing renegotiations to walk, but excluding technologies would it be safe to assume that's continuing growth in your end markets and your market share gains for warrants.
EBIT margin improvement for mobile networks network infrastructures and see it.
As a whole.
Are there any headwinds that should bear in mind going into 'twenty three thank you.
Yeah. Thank you starting with the first part of your question when it comes to the license litigations and.
There resolution for Chisholm 'twenty two guidance.
No we have assumed that some of these.
Outstanding Yeah.
Renewals will be solved.
Yeah and.
Yeah, you know God knows if that will not be the case, we believe that we will still.
<unk> be in the range of 11 to 13, 5%.
And your second question.
What canvas to.
But in an N I N C N S.
And.
When it comes to choosing 23.
Outlook I would say that it is little bit too early to give any specific guidance in 2023.
And Jim we will revisit this and get back to you wouldn't be reported quarter four results as well and then we have a better understanding of visibility.
And how the different regions.
And our customers Capex plans will be evolving as well.
And.
Yeah, but.
But I can just mention that just like we said earlier our longer term guidance.
Is that deliver at least 14%.
And we aim to step by step continuously improve our performance towards that goal as well.
And what comes to different reasons in and.
And the regional mix that could be changed a year by year.
Yeah.
Could always impact Oh before matters.
The gross margin side.
But at the scale effect could also offset these in and give us a improvement in our operational and margin side.
Thank you Alex we will take our next question from Sebastian Sublets from Kepler Shubra Sebastian. Please go ahead.
Hello, everyone and thanks for taking the question you expect some close your addressable market in 2023, where do you see.
Upside or done what pressure in your main markets, including mobile and I All cloud then and networks, maybe she's in the on.
And the for the web.
<unk>, who you will do you have any ships to ensure IPR contractors are coming to own you would moving into 2020 free or more fall 'twenty 'twenty four and what thank you.
Yeah.
Yeah, I can take the IPR question in and I would say that we have every year or we have some.
Some renewals and.
Yeah, sometimes we have bigger ones, sometimes we have a smaller ones that usually the average contract period.
That it varies a lot between three to seven up to 10 years. So this is quite normal business for us that we have renewals.
So unfortunately, we cannot go into details on the different deals and the terms and conditions of those goes all of the restrictions that we have we can in those agreements.
Then when it comes to kind of should we expect it makes sense 'twenty to 'twenty, three especially on mobile networks, because some of the other businesses. The mix changes will most likely not be that meaningful but in mobile networks.
We are ramping up strongly are in India and at the same time it is quite likely that the that the capex of our north American customers will at least somewhat.
All my life after a very strong year. So that does mean that there will be a mix change in mobile networks are towards our emerging markets, which as mark already said will put some pressure on gross margin.
But at the same time the scale effects will be.
Meaningful meaning that are that we will get.
Through the scale better leverage on our fixed cost, which should then support the operating margin.
Thank you Sebastian.
We will take our next question from Frank miles from Dnb and Frank. Please go ahead.
Yeah.
Yeah. Most of my questions have actually been answered on the gross margin on the IPR sides.
So I'll pass that one thank you.
Thanks, Frank we'll take our next question from Francois <unk> from UBS consult. Please go ahead.
Hi, Thank you very much my first question is on the the mix that you just talked about into next year I mean, it seems that it's going to change dramatically with maybe lower U S and maybe more emerging that you. Just described should we see you know the Q4.
The past four months.
Station of the mixed impact into 2023, because it looks like the U S will come down significantly and I was wondering the India.
How does it compare you know this region amounts investors group that would be helpful to know, but just to know if the Q4 margin should be seen as you know kind of a.
One of the immediate.
Impacting 2023 and the second question is do you slightly increased your addressable market for for this year.
But you you didn't increase your revenue.
Constant currency, so I understand it's a small increase but nevertheless, I mean any reason why you didn't increase your your your forecast as well or anything you could track there would be a would be helpful. Thank you.
I think what we said about next areas that we expect.
Our addressable market to grow next year number one and then number two we would expect to take market share, but in general whether it comes to top line or margins are asthma.
Article said it is too early today to give guidance for next.
Next year, we will come back to that question when we publish our Q4 results and at the same way I would say that it would be premature today to speculate on whether or not the Q4 would be indicative of.
Next year's margin you have to remember that it's not only the regional mix.
It makes that we're talking about it is also improving product competitiveness. It is volumes and then there's also the quarterly seasonality that we that we have so that's why it is not that straightforward ones at this year's Q4 would be an indication of.
Next year.
Thank you Francois.
And we'll take our next question from Sami Sarcomere from Danske Bank. Please go ahead.
Okay.
Okay, Hi, Thanks, a question regarding your operating expenses in the third quarter, which were quite a bit above expectations.
Actually grew faster than revenues.
I think hedging explains part of this but were there any other temporary factors that impacted third quarter negatively.
There may be a sort of a.
Comment on the sort of cost base going into Q4 will that sort of still.
Still to come up.
A lying basis or is it just about seasonality.
Yeah. Thank you so I mean, and just like rightly pointed out this fall and of course FX had a quite big impact on our Opex negatively.
<unk> Yeah your own your comparison another items that effect you know Opex is also the fact that we have and you all salary yeah yeah.
Rounds that started in the first of July so impacting quarter, three as well and.
And last you actually we started studying in the first of October .
So that's why you have that if you compare quarter three this year and last year you have that difference.
The difference there as well.
Otherwise invest.
The investments in in continuation investments in R&D, and yet to secure technology leadership going forward as well.
Big part of all of the increase as well.
So let me be very clear on what Michael was saying since you were referring to the opex growth percentage compared to last year and you were comparing.
Understandably that your top line. So the reason why it is higher is as Michael said that we in a way we have double salary increases now are compared to last year, because the timing of the base salary.
What's different this year. So that is in a way an exception of light I mean, the year over year comparison in Q3 Opex.
Did you have a follow up sorry.
I'm down in Q4.
I didn't catch that.
Yes.
Sort of a standing that up.
The growth rate should then come down in Q4.
For this part yes in Q4, Theres not any more double effect compared to last year, it's only normal normal annual salary inflation.
Okay. Thank you.
Thanks, Kevin we'll take our next question from Simon Leopold from Raymond James Simon. Please go ahead.
Thanks for taking the question Firstly I just wanted to see if you could give us some sense or quantification of how to think about the contribution you expect from your wins in India and to any extent that you could see pull through the <unk>.
On the mobility portion with which would be obvious around a five two win for your network infrastructure business as well and then I've got a quick follow up if I might.
Yeah.
Yeah Yeah.
I mean, we are we are not.
At this time, giving more detailed guidance on that as to how big the India volumes will be of course, they will be meaningful we have $1 45 per cent Oh, the five G.
The dealer network for quite a few Airtel and then of course, the fact that we now have a deal with reliance G. O S. Wireless really significant because that is a customer where we were not in radio network business are in four G. Ah at all our market share there was zero percent no we have not.
<unk>.
Published what our market share will be in their <unk> network we.
We will see when that could be disclosed, but it is a meaningful market share. It's not a it's not a small piece of it is that meaningful market share. So this represents a significant volume potential for us and you are absolutely right that are getting.
And they speak way to Institute a significant radio networks.
Has potential then pull through so whatever you want to call them into networking infrastructure.
There is a very interesting optical network opportunities for example, lesser contact myself these days.
These deals.
This applies to networking infrastructure in general are in India.
Thanks, I mean did you have a follow up yes.
Yes. Please.
So you've been clear and quantifying the constant currency or the impact of foreign exchange rate changes on revenue could you help us understand a year to date.
Foreign exchange rate changes have affected gross margin and Opex are those things you could quantify.
Yeah. Thank you for the question.
What would we do.
We are showing in our report is only yeah with extra currencies and not the comparison with them.
On a constant currency as.
What we do is that we have a net hitching a methodology, which means that that we would basically yeah look the net in inflow and outflow.
And we hedge that net inflow and is the reason why we.
We also reported the hedging impact in only one role in other operating income and expenses.
Thanks, Simon let's take our next question from Rob Sanders from Deutsche Bank. Please go ahead.
Yeah, Hi, I just had a question about <unk> standalone deployments that doesn't seem to be any momentum at all in the west.
Behind <unk> messed up right to think and sticky on NSA, and Eric and flagged that as a headwind.
The <unk> Cobra and then Tim just being slow I was just wondering how exposed you are to data trends.
And you know.
Giving me that you've signed a lot of contracts, but there's not so many lives.
Do you tend to sign a lot of the value upfront in a contract or is a lot of the value kind of contingent on the degree to which these.
These networks are deployed.
Thank you. This is a very good question and Uh Huh you Ya.
You are on the right track one based upon because because clearly I mean this is one of the reasons why why.
The cloud and network services, which of course includes the coordinates what our top line development. This is a bit.
Weak.
Actually we had they had and have a strong position in in three G core a network of networks in different parts of the world on what is happening right. Now is that that market is actually going down faster than the five G. A stand alone guar market. This.
It's a growing.
That market will come I mean, there's no doubt about that but that.
That is a in a way a bit late cyclical compared to the radio development because that are that are we have I mean, we are good in terms of making making deals but the revenue coming through it requires that there is a there is traffic there is load on their networks and that will come our way.
Later, so in general of course, I mean, Europe salvation as to the speed with which <unk> standalone is a spreading.
It is quite slow at the moment, but it will speed up and I mean, we have so many discussions with operators who have realized that in order to.
Then get to the full benefits out of five G, including all the new monetization cases, and do really compelling slicing for enterprise customers and so on and so on you will need a standalone five G operators understand this but this just in many cases.
Normal amount of complexity.
But they need to go through in order to be able to truly rely on may five.
Stand alone five G. It's a it's not a simple thing for them, but I'm confident that they will get there and that's definitely their plan.
Thanks, Rob we'll take our next question from Artem <unk> from Seb Artem. Please go ahead.
Yes, hi, and thank you for taking my question actually I have one relating to supply chain stipulation and especially mobile networks delivered quite healthy growth in the quarter do we see the reset steal some catch up to be done.
The supply chain situation all his basically situation normalized what comes to this particular business area.
Yes, there is still more catch up catch up to be done. It's it is normalizing, but it is not yet fully back to normal and and we should assume that it will not be before the first half of 'twenty to 'twenty three before we should assume that.
We are more or less back to an almost jackson.
Thanks, Tony did you have a follow up.
Yes, Indeed quick one related to <unk>, so so basically ongoing disputes.
As a result, the severely basically reach target.
Run rate range of one four to $1 5 billion euros or does it require some agreements as well.
Yeah. Thank you yeah, we assume that when we have signed these deals that are open now we will have returned to that one four to $1 5 billion.
Top line levels.
Thanks Harlan.
We'll take our next question from Dinardo minimum from Jefferies. Please go ahead.
Hi, good morning, Thanks for taking the question.
I was just wanted to focus a little bit on the.
Network infrastructure business.
Clearly as it goes into 2023.
My point is I mean, given that there is some uncertainty on regional mix et cetera are all on the on the mobile network side of things E E.
It is if your overall margin has to go up then presumably it will also require some kind of positive momentum in the other divisions, especially a network's infrastructure.
So when we look at it.
There there is a slowing down effect that seem to be coming through on the fixed network side, where he led growth has slowed.
7% from higher levels previously how do you see that continuing is that something which could further decelerate because of the high base and a reduction in fixed wireless access that you pulled out in any one release.
And and when you look at the IP networks, which I would assume is the highest margin part of that division.
And does the new new web scale, when there are give us significant upside there and it will that'd be a positive margin driver him too.
Into 2023, and if you could just give us a bit of overall flavor on how you see the various parts of that business progressing into next year that'd be great.
Okay. Thanks, I will try to answer your question without without giving giving detailed guidance for next year, because again, we will come back to that one.
When we publish our Q4 you are absolutely right that are that are some of the comparisons are getting tougher, especially in fixed networks, which obviously will limit some of the growth opportunities, but we still do believe that there will be a growth opportunity is actually in all of the businesses.
We have a network and infrastructure.
We have to remember that in relative terms are in fixed and IP networks and optical networks in all of this we are we are improving our relative competitiveness Saturday technology position in IP networks, we are now ramping up ramping up.
In the second half of the year. The F 35 platform F before solutions already provide a compelling solution and they actually so still very well and now we are adding five that further increases our competitiveness.
So our targets regardless of how the mine gate.
Develops a our target is to take market share.
In that business.
Going forward in optical networks.
Mentioned earlier, we have had some.
Component.
Supply chain challenges, which we believe that will also be sorted out we have diversified the component base excellent feedback from customers on the new PSA five.
Generation of products and there is more to come in the pipeline. So also in this business there are good possibilities.
Take market share next year and then they don't fix do you may have seen that we just launched a launched a new platform.
For fixed broadband access passive optical networks that is actually a future proof if customers now start making investments that platform will be upgradable in the future even to 50 gigabit born or even 100 gigabit PON in the future. So that is a future proof.
Clearly future proof platform and at the same time, we are seeing that that not only in mobile networks, but increasing gain fixed dose. So the trustworthiness of the supplier in all aspects related to it this wailing weighing higher and higher in customer decision, making criteria. So overall hi.
I'm optimistic both when it comes to market development than our relative competitiveness and our internet infrastructure actually all our segments. You have seen it you will have seen the progress we have made this year and actually it's thought the authority or a day last year.
We are not going to be immune to the macroeconomic cycles or anything like that but whatever the market will be we believe that we will be able to continue to improve our relative positioning in the market next year and then finally, you asked about the web scale theirs.
These are slow processes, we signed a deal with Microsoft for Florida.
Florida.
Switching earlier in the year now we are in this quarter signed up.
A deal with another web scalar named cannot be disclosed at this stage. There is more potential the nature of these customers is that it takes a long time to get in but once you are in you are in and then there is actually a lot of revenue upside.
But we have to be realistic that that this is not something that is a question of one or two quarters here you need to be that you need you need a little bit patients.
Thanks to an order we will take our next question from Sandeep Deshpande from Jpmorgan.
Please go ahead.
Yes, hi.
My question is a more longer term question already looked at Nokia margin mobile networks, you will see today 969, 7% margin in the first three quarters of the year, yes that in the fourth quarter that there would be some mix impact your margin is still substantially below yup.
Air margin in mobile networks are you, saying that your margin will not go to work.
That's a small short term impact that you're talking about because its mix in the mobile networks business will change over the next two years as it doesn't always change in the mobile network business.
Their ships in that end market.
Well first of all as you have seen we have we have a in a crazy fundamental way strengthen our competitiveness in this business in the past couple of years, unless we have said many times that.
Main.
Reason why are we have lower margins in this business than our our key competitor is it is clearly clearly the topline on the regional mix and our respective portfolios and the fact that we have had a because of some earlier customer decision, let's say lower market.
Our share, especially in the North America market with similar volume and a similar geographical mix I do not see any reason why we would not be able to have similar margins.
Now of course.
I mean, you are absolutely right that are that there will be in the world are five J market, there will be a certain shift towards more emerging markets that will affect us and our competitors see nice email that way.
Wei so from that point of view it should be a more level playing field going forward.
We have said that our ambition in this business is double digit margin double digit margins going forward and that supports then nokia's overall, 14%.
Operating all comparable operating margin goal. So let's now see first that when we get to double digit and then there is the time to talk about potential next steps after that.
Did you have a follow ups on that.
Yeah, just a quick follow up are you seeing a significant shift in the mix is the U S substantially weakening next year, what is that growth through the rest of the market.
Now we need to we need to still see that's where the where the U S. U S. Customers' capex plans and I mean, so you haven't seen they have made some indications are there are still a lot of things that they need to need to confirm these has been a very strong year in North America. So it is prudent to expect some normalization.
And at the same time.
As mentioned, our India five G. Basically goes from from zero to very high levels in a shot I guess.
Time operators five year ramp up plants are really really aggressive and that will affect us a.
A lot volumes.
In India in 'twenty, three and Consequentially also that also the mix.
Yeah.
Thanks, Sandeep, we'll take our next question from <unk> from Credit Suisse. Please go ahead.
Yeah. Good morning, guys can you hear me.
Yes go ahead.
Yeah. Thank you. Thank you for taking my question. So two please firstly, there's been some talk from a European prices about pushing out investments to protect our free cash flow in light of higher energy costs.
And head of Vodafone, Italy mentioned this so I just wanted to are you seeing any reductions in capex budgets or any discussions that corroborate dispute with a wireless operators in Europe and are you seeing anything similar outside Europe and then my second question is on Hum any measures you have in place to pass on any inflationary.
Cost increases.
You know as as you go into 2023. Thank you.
Well the inflationary cost increases of course, we are passing on continuously on do you have you have seen and when you look at the.
Our mobile networks and ni.
Our genes that are we have been fairly successful in that of course as we have said, it's always easier much easier to do that the new contracts than in all of the existing contracts then depending on the business typical contract length. They sometimes do yours in mobile networks typically is three years. So.
The effect comes gradually but what we are seeing in our margins is obviously, a combination of our pricing power and ability to pass on inflation into customer prices. But then also the fundamental product cost I mean like in mobile networks, we have been pretty successful in pushing down the technology base.
Technology cost and now you see the results.
In the expanding margin in mobile networks, then when it comes to energy of course, we all know that the energy situation, especially.
In Europe is very challenging.
Electricity prices are up gas prices are up.
You can take that in two ways I mean in some cases operators may speed up their investments because through new generation of products. They can lower their there.
Electricity consumption.
That is one way to look at it the other way is of course that the that you want to cut your capex because here.
Need to be able to spend more on electricity that I believe that we will see amongst both both types of cases, there has been some announcements are not that many but there has been some announcements by operators.
That they would be looking into their capex next year because of this but again, we have taken this into account when we estimate our total market still continues to increase globally next year and again. This is something that our operators each operator I need to speak for themselves the additional.
For us to comment on their behalf what their actual plants then it will be.
Thanks, Amy we'll take our next question from Richard Kramer from Arete, Sorry, Richard Please go ahead.
Thanks very much.
It's interesting to see some growth resume in China, but can you describe what your approach will be next year to the market. If there's scope at all to materially improve your market share position, especially in mobile and are you going to face any restrictions based on the U S. Chip restrictions that are currently coming into place.
Yeah, We don't believe that's the the U S very strict sense would.
Have any any direct effects on a on a spot basis of course, something that that needs to be fallout on.
On a continuous basis, because the situation restrictions and especially then their enforcement and implementation is a is a matter that is work in progress ambition. They they are still going to discuss with many other countries are indeed, that's what it will mean, but it's very clear that the trade dress takes us or are getting.
A tougher and tougher and they are adding new things since it's not the only only anymore about.
Semiconductors, it's also about design tools, and it's about software et cetera. So.
That's good then of course have a well.
Potentially quite a big indirect effect on the market dynamics, because it may change the competitive relative competitive positioning yourself.
The players in the market, depending on who has and who has not access to the latest thoughts on the latest our latest chipset generations then when it comes to our market position in China.
I am a bit.
Skeptical attitude.
A possibility that there would be any big positive news coming I mean, we continue to.
Fight.
On the market. It is of course, a very large market. It will continue to be so but the reality is that the market shares that are available for non Chinese players in China.
They have been coming down for some years already and it's a little bit hard to see in today's geopolitical environment that are how that could change in a big way, China, Greater China region, which of course includes Taiwan.
In our case I think it's.
Around 6% or something like that of our total total so it is much lower than it was still some years ago and again.
It's hard to say about how that could change.
Thanks, Richard will take our next question from Frederic withheld from Handelsbanken. Please go ahead.
Thank you very much my questions have been also so I just want to have it.
A detailed level within technologies, you're right in the text to license agreement that ended in 'twenty one that now.
Now are in litigation slash renewals. So it does not mean that one is in litigation. The one we know with alcohol and the other one is stale.
Negotiated around even though you don't have a contract is trying to walk just to maybe clarify that thank you.
Yeah. Thank you and we are in in both litigations with both but also renegotiations with both.
So litigation doesn't mean that we and the negotiations that.
We'll continue anyway.
Yeah. So so that's that's the situation and.
Yeah.
Sophie is indeed during June 'twenty one.
And that's why when we didn't see that there was a good enough traction yet on on the.
Negotiation.
Since that's why we we have to get into.
Enter into litigation in different countries.
And litigation is always to the final.
Step in when we see that.
They're in negotiations do not bear fruit.
So we try to avoid those as much as possible, but in these two cases, we came to conclusion that we believe that's the best way to continue.
Thanks, Robert and we will take our last question. This morning from Joseph Zhou from Redburn, Sir. Please go ahead.
Hi, Good morning, David Pekka and all kind of thank you for taking my questions I have two and I'll go one that can find so firstly, just returning to the reliance to contract win in India.
You do not want to disclose the market share, but as you eluded to earlier you a major provider. So can we assume that the contract is more or less evenly split.
India.
Layers at least and also where are we with margin in India versus group and also given that reliance is going for a stand alone.
So can you maybe tell.
Tell us a bit about the margin difference potentially between our standalone deployment compatriot NSA deployment.
Please.
That's my first question.
Yeah, Yeah, Yeah, Hey.
Unfortunately, I I'm not in a position to give you more details on that on the market share I mean, especially not to comment anything on our on our competitors our behalf. The only thing I am able to say that if they say meaningful market share and for US. It is idiots say significant entries in Sweden.
Tap radio network with this customer in <unk> at all.
It is of course, a well known fact that the India market is it's highly competitive.
And that will put some pressure on gross margin.
That's why I said earlier than on the other hand, the scale effects are will be so big that are that we believe that are entering this business wheel will actually support our path to watch our our group operating margin targets.
And as a follow up just.
And the long end of lung stand alone.
In general any.
And well it turns on that no well I mean this is now our radio network.
And and.
That is not a relevant consideration in a deal like that so it is that is that the question is not driving driving any any any any margin developments as such.
Did you have a quick follow up Joseph.
Yes, David just a quick follow up on FX. So I calculated for the quotes are the FX had a dilution you can pick up a 110 in depth.
On your operating margin.
We should it be higher than I was expecting given your guidance for the U S. D movements, there says Saturday Europe normally gets with even with hedging as it should be slightly dilutive.
10 bps.
What I can you maybe indicate.
It's the comparative become pets and that's close to.
And or should we expect.
A similar kind of a dilution.
Impact from FX.
And just I'll, maybe take that one offline listening that he can run through the numbers, but obviously theres nothing has changed in our underlying currency exposures as we outlined back in our Q2 presentation. When we went into it in detail.
But I'll I'll phone will follow up with you separately on the numbers on that.
But with that 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 actual results may therefore differ materially from the results currently expected factors that could cause such differences can be both external as well as internal operating factors we have identified.
Such risks and the risk factors section of our annual report on form 20-F, which is available on our Investor Relations website.
You all for joining us today.
Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.
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