Q4 2023 Nokia Oyj Earnings Call
Good morning, ladies and gentlemen, welcome to Nokia's fourth quarter 2023 results call.
I'm, David Mulholland, instead of Nokia Investor Relations and today with me as Pekka Lundmark, our president and CEO, along with Mark <unk> our CFO.
David Mulholland: 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 that involve risks and uncertainties actual results may therefore differ materially from the results. We currently expect.
Pekka Ilmari Lundmark: So that could cause such differences can be both external as well as internal operating factors.
Pekka Ilmari Lundmark: We have identified such risks in the risk factors section of our annual report on form 20-F, which is available on our Investor Relations website.
Pekka Ilmari Lundmark: Within today's presentation references to growth rates will mostly be on a constant currency growth rate basis. However, we refer to margins it would be based on our comparable reporting.
Pekka Ilmari Lundmark: Please note that our Q4 report presentation that accompanies this call are published on our website the.
Pekka Ilmari Lundmark: The report includes both reported and comparable financial results and a reconciliation between the two.
Mark: Is that complete in terms of the agenda for today will give an overview on the quarter and then mark that we're giving you a bit more detail some of the key factors impacting our financial performance before Patrick It gives a brief conclusion when we move to Q&A.
Mark: Let me hand over to Pekka.
Pekka: Thank you David.
Pekka: She had to everyone for joining us today. So let me start with an update of some of the strategic and operational changes, we announced without Q3 results in October.
Pekka: We are evolving our operational model to give all our business groups increased autonomy and how have now embedded our sales team seem to the business groups. This announcement, that's been well received by our customers.
We have hit the ground running in 2020 for the malls to embed sales teams seem to the business group's happened at the start of the year.
David Mulholland: We have appointed customer account actually could tapes and.
David Mulholland: The country manager role has also been reinforced the customer account actually good data out there to ensure that we still offer one point of context and personally responsible for overall relationship management with customers without detracting from the accountability on the business groups. Some.
David Mulholland: Some corporate functions have also moved.
David Mulholland: So the business groups as we move to a leaner corporate center.
David Mulholland: During first half of 'twenty 'twenty four we will begin reporting business group regional sales and cash flow metrics to further enhance transparency.
David Mulholland: And we already comment commenced the process of resetting our cost base during 'twenty to 'twenty. Three we expect this program will generate 400 million Euro cross savings during 2024.
Yeah.
David Mulholland: If we then turn to Q4 and 2023 full year, we of course saw a meaningful a shifting customer behavior impacting our industry.
David Mulholland: This was driven by macroeconomic environment and high interest rates, along with customer inventory digestion, especially in North America. This led to our fourth quarter sales declined by 21% up full year sales declined by 8% constant currency.
David Mulholland: Proactive action across our organization are meant we were able to predict our profitability, while continuing to invest in R&D and we deliver a day comparable operating margin of 14, 8% in Q4 and 10.7% for the full year.
David Mulholland: Was a resilient performance considering the challenging environment that lower contribution from our high margin patent licensing business has some great new Els remained outstanding.
David Mulholland: We were pleased with our cash performance in the quarter, where we generated $1 7 billion euro of free cash flow and we ended the year with a net cash balance of $4 3 billion Euro.
David Mulholland: Positively. We also ended the year with improving order intake Oh fourth quarter book to Bill of Us above one, particularly supported by our network infrastructure business, indicating at least some improvement in the overall spending environment.
David Mulholland: Moving onto network infrastructure.
David Mulholland: Sales declined by 24% in constant currency versus the year ago quarter, which had been particularly strong for the full year sales declined by 9% mainly.
David Mulholland: Mainly driven by IP and fixed networks optical networks grew by 5% and a S N declined slightly.
David Mulholland: There was a favorable development I think cross margin, which impacted by improved by 60 basis points versus the year ago quarter and by 130 basis points for the full year and this was driven by positive product mix.
David Mulholland: Operating margin in the quarter decreased 13, 9% due to the impact of lower sales.
For the year.
David Mulholland: I mean, India ended up at 13.1%, which was comfortably within the range. We had shared at the beginning of the year and above the targets. We had set for ourselves back in 2021 as you'll remember we had capital market day back then when we where we set the targets for each of the business.
David Mulholland: This business in 2023.
David Mulholland: Oh, I'm, sorry, if I can't give you a quick update on the profitability of each of the units within NII for the full year 2023.
David Mulholland: IP networks, so its profitability declined slightly due to the weaker sales coverage, but remains mid to high teens operating margin optical networks improved strongly benefiting from the sales growth to deliver a high single digit operating margin for fixed networks. Despite the sales decline product mix was beneficial and delivered highest damage.
David Mulholland: Operating margin and finally submarine networks remained low single digit, but did improve slightly year over year.
David Mulholland: Mobile networks Q4.
David Mulholland: So the continued impact of normalization of India rollout and the impact of inventory digestion and macroeconomic pressure on spending in North America labor.
David Mulholland: We were however, pleased to see a robust gross margin performance supported by favorable regional and product mix in Q4. Similarly operating margin for the quarter was 11, 5% an improvement of 470 basis points versus the year ago quarter, driven by gross margin and lower variable pay accruals.
For the full year.
David Mulholland: In spite of topline challenges operating margin was seven 4%, which was within our state the planning assumption for the year and at the higher end of our targets we set back in 2021.
Finally in mobile networks.
David Mulholland: At&t's recent announcement to more to a largely single source radio network was of course, a disappointing development.
David Mulholland: As we said at our Investor event in December and that's confirmed by AT&T. This does not reflect the technological competitiveness that we have achieved with our products. This has been evidenced by our significant increase in brand market share in recent years.
David Mulholland: I firmly believe mobile network access the right you said that you can place to create value for our shareholders in the future with opportunities to gain share diversify our business and achieve a double digit operating margin longer term.
David Mulholland: CNS sales declined in Q4 by 5%.
David Mulholland: Driven by declines in all businesses with the exception of business applications, which go to the <unk>.
Gross margin improved and based flowed through to operating margin and the full year improved from five 3% to seven 9%.
David Mulholland: 7.9% operating margin would deliver at least at the higher end of what we target theater startup the year.
David Mulholland: It is slightly below the lower end of what we had set the target back in 2021. This is due to the increased investments we decided to make a private wireless which has been constraints caused consistently delivering double digit growth.
David Mulholland: Wendy twenty-three did see us making progress in our portfolio rebalancing efforts with the divestment of vital queue I P. The announced sale of our device management that service management platform businesses in December and.
David Mulholland: The partnership we announced with Rentech Red hat cloud infrastructure.
We also led the industry trend towards programmable networks with the launch of our network is code platform, which now has nine commercial agreements.
David Mulholland: Yeah.
David Mulholland: Nokia technologies.
David Mulholland: Net sales decreased 63% on both a reported and constant currency basis in the fourth quarter as the year ago quarter had day 300 down five.
David Mulholland: Million, one off noncash benefit we explained at the time.
David Mulholland: Excluding this the year on year net sales performance, primarily reflected lower net sales from a license that expired at the end of the third quarter of 2023.
David Mulholland: The financial performance in 'twenty three was of course, not what we had hoped for as some deals took longer to renew than what we had been we had expected there were still some very important. They there were still some very important achievements, we signed long term renewals with both Apple and Samsung along with signing a new agreement with the owner.
David Mulholland: Positively as we of course announced yesterday, we have now achieved a renewal with alcohol and.
David Mulholland: We are very close to concluding another agreement in China.
With these agreements we are now in the final stages of our smartphone license renewal cycle with only the recently expired major agreement outstanding.
David Mulholland: This provides long term stability to our Nokia technologies business, which can now increasingly focused on growing our licensing run rate in the new growth areas, including automotive consumer electronics, I O T and multimedia.
I remain confident that with the growth in D. C areas. We can return to an annual net sales run rate of one four to one 5 billion in Nokia technologies in the midterm.
David Mulholland: Okay.
David Mulholland: And the price net sales decreased 3% in constant currency in Q4 in comparison to a very strong year ago quarter.
David Mulholland: However for the full year, we grew 16% which shows strong continued momentum.
Overall customer engagement also remained strong as we added 151, new enterprise customers in the quarter.
Private wireless continued to show strong growth in 2023, and now has more than 710 customers.
David Mulholland: You can also see on the right hand side of the slide a breakdown of that 2.3 billion Euro of enterprise sales, we added <unk> 20 in 2023.
David Mulholland: We wanted to give a bit more color around the components of our enterprise business almost half of enterprise sales come from areas, where we sell our ni products seem to target the identive pressed verticals, particularly los that Valeant mission critical networks.
David Mulholland: Private wireless.
David Mulholland: He is now just over a quarter of our enterprise sales having grown strongly for several years and then web scale is an increasingly important opportunity for us as well.
David Mulholland: Now I will hand over to Mark to go through the financials in more detail.
Douglas Smith: Thank you Beth and good morning, good afternoon from my side as well.
Douglas Smith: Start by looking at the regional performance of the businesses.
Douglas Smith: And in quarter, four all regions declined and.
Douglas Smith: We saw growth in middle East and Africa.
Douglas Smith: Most notably North America declined once again and reflected the inventory digestion and macro uncertainty, which has been dominating most of the year.
Douglas Smith: India declined by 30%.
Douglas Smith: And this was related to the GE deployments that continuous normalized.
Douglas Smith: And in Europe, we saw a meaningful decline in the quarter and.
Douglas Smith: Some of which was driven by Nokia technologies, which is entirely reported in the Europe numbers.
Otherwise the decline was mainly driven by mobile networks and network infrastructure.
Douglas Smith: Yeah.
Douglas Smith: And then looking at the operating profit in the quarter I explained a number of these drivers already are the few things that I want to point out.
Douglas Smith: And first one is common contribution which was better than a year ago quarter.
Douglas Smith: And this was driven by venture fund, where the performance improved.
In mobile networks, and cloud and network services, they improved somewhat year on year.
Douglas Smith: And then however, the majority of the decline was driven by Nokia technologies, where the year ago quarter benefited from the 305 million one offs.
Douglas Smith: As I mentioned.
Douglas Smith: And then moving to our cash position in quarter, four we had a strong quarter and ended the year with $4 3 billion of net cash an increase of $1 3 billion compared to quarter three.
Douglas Smith: And this is mainly reflecting strong quarter for appropriate and a significant inflow of cash related to net working capital.
Douglas Smith: And this was due to both lower inventories as well as receivables, which benefited from a partial prepayment of licensing agreement that was made in 'twenty three.
Douglas Smith: And during quarter four we returned over 200 million to shareholders through dividends.
David Mulholland: And the completion of the second trends of all to your $600 million share buyback program.
David Mulholland: In the full year 'twenty, three we returned over 900 million to shareholders through dividends and share buybacks.
David Mulholland: Free cash flow the full Europe.
David Mulholland: It was just over 800 million and this is 34% conversion compared to operate an appropriate and this was in line with our guidance of 20% to 50% a year.
David Mulholland: Okay.
Then turning to our 'twenty to 'twenty four cash flow outlook, we try to provide a D. Here on the moving parts in the.
30% to 60% free cash flow conversion from comparable operating profit that we have guided for.
David Mulholland: We do expect to see a positive impact from our operational net working capital in 'twenty four as we continue to see some reduction from the buildup. We saw during the past two years.
David Mulholland: And then we expect cash taxes to be about $500 million in 'twenty four.
Douglas Smith: And then <unk> also cash flow related to restructuring.
Douglas Smith: The boat 550 million, although I would like to know that we also target to achieve our $500 million in Europe cost savings in 'twenty four and these related both the program. We just launched but also the final savings of all prior 21 program.
Douglas Smith: Yeah.
Douglas Smith: And then finally Nokia technologies, we expect cash generation to be approximately 700 million below operating profit.
Douglas Smith: This is due to prepayments that we received in 'twenty three.
Douglas Smith: But one from 'twenty five and onwards, we expect greater alignment between Nick Luketic launches cash generation and operating profit.
Douglas Smith: So taking beans in the condensate.
Douglas Smith: Consideration, we should land into the 30% to 60% conversion rate.
Douglas Smith: Then as you look out to 'twenty six you can see that we are well on track to reach our target of 55 to 85 conversion.
Douglas Smith: Especially as Nokia technologies cash generation starts to align more with its operating profit.
Douglas Smith: And then at the end of 'twenty three on net cash represented about 19% of our net sales which is above the target.
Douglas Smith: 10% to 15% that we laid out in the beginning of the Europe.
Douglas Smith: And given this strong cash position the board of directors will propose an increased dividend to.
Douglas Smith: <unk> 13 cents per share.
And the board is also proposing to initiate a new buyback program all $600 million almost two years.
David Mulholland: And given the ongoing macroeconomic uncertainty and industry challenges.
David Mulholland: We feel it is prudent to take a measured approach to getting to the 10% to 15% net cash target.
David Mulholland: And if we now look at the 24, you can see in the presentation on the release the planning assumptions, we have for our business groups chosen for them.
David Mulholland: And as you can see these are well aligned with the commentary we provided back in December.
David Mulholland: I will not go into detail on each number but you will note that we provide net sales assumption by business group instead of the targeted addressable market assumptions, we have provided in the past.
David Mulholland: Which we hope gives greater transparency as well.
David Mulholland: And peace in all of these assumptions together you can understand our full year outlook for 'twenty four.
David Mulholland: We are now guiding for comparable operating profit between two three and $2 9 billion, which takes into consideration all of the BG assumptions.
David Mulholland: We also expect the free cash flow conversion between 60, 30, and 60% for the reasons I walked through earlier.
David Mulholland: And one further planning assumption, we have provided that I would like to highlight is around the seasonality.
And we expect in 'twenty four.
David Mulholland: We expect Q1 net sales no network businesses to show launched late normal seasonal decline sequencing.
David Mulholland: Since 2016, the average Q1 sequential decline in sales has been 23%.
David Mulholland: And we expect significant seasonality in profit generation in 'twenty four with low sales coverage to wait on operating profit in quarter one.
David Mulholland: <unk> M N and CNS.
David Mulholland: And then the company then expect progressive improvement in these businesses throughout the year.
David Mulholland: I also want to Troy attention to some changes that we will be making two disclosures and accounting for 2024.
These changes are being made to enhance transparency.
Douglas Smith: Further support understanding of financials of our business grows.
Douglas Smith: First by quarter.
David Mulholland: Quarter two at the latest we start disclosing regional sales and cash flow metrics by business group.
David Mulholland: I'll provide a more complete picture of the individual parts of the business.
David Mulholland: And the second is that we will.
David Mulholland: Change the way of accounting for the impact of our venture funds.
Historically, they have been recorded in other operating income and expense.
David Mulholland: Therefore included in our operating appropriate.
David Mulholland: But going forward, we will now report these financial income and expenses.
David Mulholland: And we believe that this makes sense given the volatility of these valuations in recent years.
David Mulholland: And with that back to you Pekka for some final thoughts before Q&A. Thanks Marco.
David Mulholland: Just very quickly before we turn to Q&A, Let me conclude with a couple of couple of remarks.
David Mulholland: First of all.
David Mulholland: As already discussed we faced a highly challenging environment in 'twenty, three but considering the 8% decline in net sales I believe we delivered a resilient financial performance or business group did a good job maintaining profitability I'm still delivering an operating margin targets that we set at the start of the year.
We also delivered a solid cash performance in line with the guidance. We gave at the start of the year. This is enabling the board to propose an increase in our shareholder distributions for the coming year.
David Mulholland: Secondly, we are moving quickly on our cost reduction program and more importantly, we continued to take steps to increase the operational autonomy of our business groups. We want to make sure. They are empowered to take the right decisions to create shareholder value into the future.
And finally, while the environment will remain challenging in the first half of 2020 for the strong order intake we saw in Q4 points to some improvement in the spending environment, especially for network infrastructure.
Douglas Smith: So we are now in the final stages of our smartphone license renewal cycle in Nokia technologies. This will lead to greater stability in Nokia technologies going forward and will allow the business to focus more on its growth areas.
David Mulholland: With that I will hand back to David for the Q&A.
David Mulholland: Thank you Pekka and market for the presentations with a Q&A session as a courtesy to others in the queue. Please could you limit yourself to one question and a brief follow up.
David Mulholland: Allison with that could you please give the instructions.
David Mulholland: We will now begin the question and answer session. If you want also begin to meet their webcast. Please remember to mute the audio on your computer for asking your question. That's the basis that is secondly to ask a question you May Press Star then one on your telephone keypad. If you like using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question.
David Mulholland: Please press stop N T I will now hand, the call back to Mr. David Mulholland.
David Mulholland: Thanks, Alex.
David Mulholland: Take our first question from Jakob Bluestone from BNP Paribas exam Jacob Please go ahead.
Jakob Bluestone: Thanks, David Hi, Good morning, I was hoping you could maybe expand a little bit on the green shoots commentary.
Jakob Bluestone: Specifically, what do you think driving the sort of.
Improvement coming through.
Maybe if you could just comment a little bit whether you're seeing any green shoots in mobile networks or if it's just the network infrastructure side. Thank you.
Jakob Bluestone: Yes. Thank you.
Jakob Bluestone: The comment on Green shoots was clearly more on the NII side.
Jakob Bluestone: And of course, the good thing now is that as you know we have the four businesses and Ni we had a strong order intake in Q4 in all four.
Jakob Bluestone: This division of Ni.
Jakob Bluestone: In IP networks.
Jakob Bluestone: It's driven by tailwind sin web scale.
Jakob Bluestone: And then the price contracts in fixed networks, it's driven by government funding, which starts to benefit the market.
Jakob Bluestone: Now in order intake, but because of the delivery cycle then.
Jakob Bluestone: So sales and top line, mostly in the second half of 2024 in optical networks, it simply share gains because of our strong product momentum and the excellent feedback we're receiving from customers to our to our recent product announcements and Aesop and submarine networks.
Jakob Bluestone: Already had a strong order book in the beginning of the quarter.
We had great order intake in Q4 as well in and that combination is now going to be driving the outlook for that business going forward.
Jakob Bluestone: Because you have a follow up Jay.
Jakob Bluestone: Maybe just on the mobile networks, what are you sort of seeing there.
Jakob Bluestone: It sounds like it's still pretty tough.
Jakob Bluestone: Yeah.
I mean, the the market will remain tough at least for the first half.
Jakob Bluestone: After a year when you look at the mobile networks.
Jakob Bluestone: Sales guidance for this year there of course, you need to remember that the significant part of that is driven by India.
David Mulholland: Our group sales in India were in.
David Mulholland: In 2022, they were $1 3 billion euros and last year $2 8 billion and now we are expecting that our twenty-four on group level would be somewhere between a one and a half to 2 billion euros and most of that decline.
David Mulholland: Most of that decline that we'll see in India. This year will be in mobile networks. So that already when you do the math you can see that that explains a significant part of part of that drop but overall I mean, we are still expecting or waiting waiting for mobile operators throughout the world just start investing because our investments have been very low.
David Mulholland: Three of US a tough year for the whole market of course, most pronounced in North America fact, still remains that only about 25% of base stations outside of China are five Jamie inbound and a small majority of all core networks have been upgraded sledge advanced.
Douglas Smith: Those investments will need to come because without that operators will not be able to monetize five G.
Douglas Smith: Appropriately.
Douglas Smith: Right now invest interest rates are still high many operators have high leverage the good thing would be that if interest rates would come down.
Douglas Smith: Data traffic will continue to grow 20% to 30% per year. So gradually that will also start to forced operators to again invest but oh.
Douglas Smith: The reality is that that nobody knows when that will come I'm, absolutely convinced that it will come but we are not yet seeing concrete signs of it happening.
Douglas Smith: Thank you Jacob we will take our next question from Simon Leopold from Raymond James Simon. Please go ahead.
Douglas Smith: Great. Thank you for taking the question I wanted to see if you could help us in terms of how the AT&T transition with the the D. O ran a project it's affecting your revenue assumptions and what I'm sort of trying to tease out here is is there sort of a step down rapidly.
Simon Leopold: Klein or is there maybe a long tail of spending before it slow down.
Simon Leopold: Just like a little bit of color about how we should think about that revenue impact in.
Simon Leopold: In 2024, thank you.
Simon Leopold: Okay.
Simon Leopold: Just as a reminder, we said that AT&T represented last year, 5% to 8% of sales in a mobile network. So that it's important to keep in mind that that 23 number was significantly in terms of euros or dollars.
Simon Leopold: Was significantly lower than in 'twenty, one or 'twenty. Two so we had already seen a significant decline in AT&T volumes because of their lower investments now.
Simon Leopold: We have an existing contract with a five year contract with AT&T or that was a that was published in the beginning of 'twenty. One negotiations are still ongoing with respect to how we execute on these contracts done.
Simon Leopold: Before we have concluded.
Simon Leopold: Those negotiations it is hard to give a clear answer.
As to the how the trajectory of decline will look like but clearly we do expect our sales to AT&T to drop this year, we have to remember, though that that's going to be first of all look at mobile networks.
Simon Leopold: Irrespective of this contract we will continue to supply microwave radios on FEMSA products to AT&T and then outside of mobile networks. We obviously continue to remain we remain a key supplier in both network infrastructure and CNS and those two businesses do not have anything to do with it.
With the radio network decision that <unk> made.
Simon Leopold: Did you have.
Simon Leopold: Yeah, and as a follow up.
Simon Leopold: In forecasting this quarter in terms of the planning we don't have a a revenue outlook, but there is the operating income outlook.
David Mulholland: I imagine that that is what's really important to folks, but I assume there is an underlying revenue assumption.
David Mulholland: You would have given it to us I imagine if you wanted to and you've chosen not to Sue maybe help us understand sort of the thinking and the puts and takes on what assumptions you've made for full year 'twenty for revenue.
Sue: And the choice to guide the way you have thank you.
Sue: Yeah, absolutely. Thank you.
Sue: And as you see we changed a little bit how we're guiding for this year and we decided to give more flavor and information about our assumptions for business grew.
Sue: <unk>.
David Mulholland: We believe that this will be more helpful for you to get a better picture of each of the businesses, which are then combining the whole company on and.
David Mulholland: For the group level, we guide on the operating profit.
David Mulholland: And free cash flow.
David Mulholland: And then you can see that we have.
David Mulholland: On the business groups assumptions, we have both net sales and also operating margin.
David Mulholland: And then what comes to the technologies that we have also given you what is the operating profit assumption for this year and also the seasonality we have given you.
<unk>.
David Mulholland: Hopefully good understanding how the year will play out.
David Mulholland: And the seasonality will be yeah, I would say more back to normal that we've seen in some years.
David Mulholland: Oh go as wallet and very heavy second half while quarter, one is about 23% normally lower than quarter four year before.
David Mulholland: So I hope that these more detailed assumptions in the guidance, we'll give you a better understanding how the company's is going and also giving you a better understanding of.
David Mulholland: The different areas and businesses, maybe as a quick follow up just to put things in perspective in terms of seasonality. So when we are saying that we are returning to a more normal seasonality.
How was this than abnormal and.
David Mulholland: In 2020.
Three that there were two main reasons for that in mobile networks. There were significant deliveries in India in the first half of the year.
David Mulholland: Which are kind of where they started the seasonality and then.
David Mulholland: The same thing, but for a different reason and ni as well the beginning of the year was extremely strong because they weren't catch up deliveries that had to do with the with the supply chain a.
David Mulholland: Shortage and the extremely high orders that operators have placed as a result of increased demand as a result of COVID-19. So that's why both ni in a Manhattan unusual seasonality in 2023 and both of those we expect to return back to normal in 'twenty four.
David Mulholland: We will take our next question from Francois <unk> from UBS. Please go ahead.
David Mulholland: Okay.
Francois A. Meunier: Hi, Thank you very much just wanted to ask on the Hyperscale wins and momentum.
Francois A. Meunier: Because you seem to know in your remarks and.
Francois A. Meunier: Release are quite excited about the wins in the network infrastructure momentum.
Francois A. Meunier: And you know I wanted to ask you you know from the switching and routing unit.
Francois A. Meunier: Do you are you taking some market share there can you elaborate a bit.
Francois A. Meunier: Pascal you know wins momentum.
Francois A. Meunier: Related to a I just want understand a bit better.
Francois A. Meunier: The momentum because when we look at Arista and Cisco.
It doesn't seem to have a lot of momentum. So it's very specific to you which would suggest that you are getting some market share. But then you said a bit earlier that.
Francois A. Meunier: You know market share is more on the optical side and it seems to be more market driven on the other side, it's around cleaning and <unk>. So just to elaborate wouldn't be quite as my first question. Thank you.
David Mulholland: That's a that's a highly relevant question of the day a N a business with a hyper scaler has been fairly optical driven exactly as I commented before we have existing optical business with them that is looking pretty good but the main growth potential for us there is really enough.
In <unk>.
David Mulholland: Data center switching.
David Mulholland: And I cannot disclose the name, but but we had.
A significant order.
David Mulholland: One of the Hyperscale or in Q4, we hope to be able to disclose the name also in not too distant future, but we are not able to do it yet that this will be driving.
David Mulholland: Growth for.
David Mulholland: For our web scale business in our in the IP networks quite of Ni.
David Mulholland: Going into 2024 of course, we have to remember that compared to our competitors our switching business. Our data center switching business is small so we are a challenger, but the the good side of that is of course is that now when we have a an increasingly strong product portfolio for that.
Jakob Bluestone: Based on our in house Silicon, which is welcomed by hyper scaler combined with strong software offering that offers a lot of flexibility for different datacenter architectures. We believe that there is a possibility to gradually break into this market.
Jakob Bluestone: And get a meaningful growth in the segment because of course, we know we all know that the CSP market as a whole will not be a growth market.
Jakob Bluestone: We target to gain share there by Datacenters will be the most significant growth market in the whole world and our industry and that's why it is so important to increasingly focus on that segment.
Jakob Bluestone: Okay.
Jakob Bluestone: I can just.
Yeah, just a quick clarification and Oh, what you sit they can't do the deal you assignment you can just close yeah, Tim and I guess some market share.
Tim: I guess you are just kind of a market share, we know, which I already mentioned given your low footprint.
Tim: Yes. It is it is equal.
Tim: Sure Yes.
Tim: Okay and just for my follow up question is on open ran.
You know AT&T I can have a surprise the market with the deal.
Tim: And that's just wondering if you see some acceleration comes of Activision kill hope in one form or the operators. Following the deal I mean, we're a few months now a couple of months after these announcements.
Speaker Change: From what we understand the Oprah as operators are also looking closely at it and see.
So do you expect or the announcements from all the operators this year of discounting or do you really think it's like just a one off for now.
Open ran is gradually gaining gaining speed.
Speaker Change: We don't expect and I have not seen that the.
Speaker Change: The AT&T decision.
Speaker Change: Would have led to any kind of increase in open interest in other parts of the world.
Speaker Change: Del Oro estimates that in 2028 over and would represent roughly.
Speaker Change: 25%.
Speaker Change: A 24% of the total.
Ran market so that gives you a perspective.
Speaker Change: What I really suggest that people need to follow up very closely that.
Speaker Change: What's the facts about different rollouts are including in all announced projects how quickly will it be and will it be true Oran or will it be over and where you just have the same supplier on both sides of the interface.
Speaker Change: We have two real commercial all ran deployments ongoing at the moment, one is with NTT docomo in Japan and the other one is the recently announced.
Speaker Change: Deutsche Telekom project in Germany, we have are already connected our D. U N C. U two five suppliers radio units, which is more than any other.
Speaker Change: Supplier so gradually.
Speaker Change: Oran frontal open frontal interface is becoming commercial reality it starts from simple radios and only gradually moves to massive.
Speaker Change: I am all but it will eventually get there as well so it will be part of the market a small part of the market for quite some time, but as I have said before we see it as more as an opportunity than a threat for Nokia.
Thanks, Rob So we will take our next question from Sami <unk> from Danske Bank. Please go ahead.
Hi, Thanks for taking my call.
Speaker Change: Or more bundled for less than 9 billion euros this year with low single digit margin.
Speaker Change: How will you be able to regain scale and grow revenues.
Sami Sarkamies: Neural target that will be required for double digit margins.
Sami Sarkamies: Long run I mean, if we look at that.
Sami Sarkamies: This forecast from Mark likes to have Laura.
Sami Sarkamies: Five year outlook off around market looks quite flattish, even if you assume some share gains from China its rivals.
Sami Sarkamies: Do you have any anything else plant.
Our cost program.
Sami Sarkamies: Announced after third quarter results.
Sami Sarkamies: Of course, I mean, the cost program is an important element in this but we also have to remember that.
Sami Sarkamies: With the exception of India 'twenty to 'twenty three.
Sami Sarkamies: So really weak here when it comes to investments and when you look at the Big picture only 25% of <unk> base stations are mid band. So that is suggesting that there will have to be over time in the second half of 2000 22020 is that we'll have to be a significant investment in five <unk> radio networks.
Sami Sarkamies: Parts of the world or indeed before <unk> starts to come in data traffic continues to grow 20% to 30% of the year and then in addition to that the Chinese will be increasingly under pressure because of political reasons and because.
Sami Sarkamies: Because of the various actions that are that the western countries have taken to limit limit there.
Speaker Change: Their access to our latest silicon. So it is very clear that to get to $10 billion.
Speaker Change: Topline we have to continue to take market share AT&T is of course, a setback from there we need to start climbing back up towards say market share that will need to start bye bye bye three if you want to get to $10 billion top line. It is a challenge absolutely and that's why we we have provided.
David Mulholland: Dave a fairly.
David Mulholland: Fairly low.
David Mulholland: LOE guidance for Dcs profitability, 124% and then we commented 26 target.
David Mulholland: The December December event, we are not assuming that we would get to double digit by 2026 then.
David Mulholland: We also need to keep in mind that when we talk about the second half of the decade.
David Mulholland: By then we will have significantly increased the <unk>.
Douglas Smith: C S P. A business part of mobile networks, we already now growing.
Douglas Smith: Albeit from a low base fast enough private wireless.
Douglas Smith: And then <unk>.
Douglas Smith: Very important target for the second half of the decade. This.
Is the defense industry, where the spending is significant.
Douglas Smith: It is currently mostly proprietary military technologies when it comes to communications and the challenge. They are facing is that it is getting extremely difficult too.
Douglas Smith: To be cost competitive they are when the technology is proprietary so it's getting extremely expensive and that's why the whole defense industry in several parts of the world. This is looking at commercial technologists at the moment such as five G to tip.
Douglas Smith:
Douglas Smith: Did.
Douglas Smith: Provide an alternative to proprietary military technologies, we have said that the actions of the damage is taking we allow them to lower the level of net sales to reach these 10% operating margin to approximately $10 billion. As you said so that is a correct a CAGR that you mentioned that is our target.
Douglas Smith: We are modeling the business currently before the cost actions start date.
Douglas Smith: The label to reach a 10% operating margin in terms of sales was 11 5 billion Euro. So now we're taking that to $10 billion.
Douglas Smith: Ross.
Ross: Did you have a quick follow up sorry.
Speaker Change: Mobile put some color regarding take a lot to you Scott.
Speaker Change: Propane.
Speaker Change: Run rate during Q4, Okay can you elaborate on that.
Speaker Change: Where we will be after.
The awful renewal I think previously you are talking about $1 1 billion.
Speaker Change: Starting this year, but I guess, it must be a bit more than that.
Sami Sarkamies: Yes, Thank you Sammy.
Sami Sarkamies: When it comes to <unk>.
Iran rate in quarter, four we had one.
Sami Sarkamies: License that expired at the end of quarter, three and that's why we see.
Run rate changed his wall.
Sami Sarkamies: But if you look 24, so we are guiding the increasing our run rate and we just kind of quantifying. These yet because we have still some deals that are outstanding and because the content of the deals are confidential. We are not allowed to give you.
Sami Sarkamies: That much information about that but I hope that that.
Perhaps in quarter, one we will give you more flavor on this as well and what comes to 20 for operating profit. We said at least $1 4 billion for the full year and this is including the catch ups as well.
Sami Sarkamies: Thanks, Amy we'll take our next question from Richard Kramer from Arete. Please go ahead Richard.
Sami Sarkamies: Thanks, very much guys my.
Richard Kramer: My question is I'm, just conscious that this year, you've laid out targets and talked about order strength at the beginning of the year and then needed to reduce your targets for margins and cash conversion now youre looking at $1 billion of cash outflows for restructuring and so my question is how are you going to mitigate the risk of losing sales or momentum or other opportunities in the midst of this <unk>.
Richard Kramer: Reset and are you confident that you can undertake the restructuring without.
Richard Kramer: Opportunities that you've laid out the grief.
Richard Kramer: Okay.
Yes, they are.
David Mulholland: The biggest restructuring when it comes to customer interface that actually went live already already on the first of January. So we did it very quickly we made the decision late in the year and we plan that executed everything very very quickly. So now Q1 will be the quarter of stabilization in the customer interface and I have to say.
David Mulholland: When we have explained the logic to the customers basically saying that we want for each business too.
Jakob Bluestone: To place highly empowered teams in front of the customer.
Jakob Bluestone: The short term simplify the organizational structure and shorten the distance between the customer and the real decision makers for each business that that's been very well received and when you then complement that with the account executive concept, where we're one of the sale of <unk>.
Douglas Smith: The businesses take on as an additional responsibility to do it.
Douglas Smith: Around the overall relationship management with a customer and then to coordinate cross b.
David Mulholland: <unk> matters, so that simplification has been well received.
David Mulholland: Of course, these type of things always of course.
David Mulholland: <unk>.
David Mulholland: Close the stability issues in the short term, but I believe that they will quickly be behind us and people will start to see the benefits of this new model then when it comes to the other cost savings. In addition to the simplification of the customer interface there.
We have to look at each business separately and of course, as we said mobile networks accounts for roughly 60% of the action. We are taking on that's of course, a reflection of the overall industry outlook and the challenges that that business is facing but this is already also well underway in terms of implement.
David Mulholland: So now they are the most important goal is really as we said in December also used to protect our R&D output.
David Mulholland: Okay. Thanks.
Okay. Please.
Yeah, if I, just and then move on to the other businesses. So because this is very much M. S centric than ni situation because they have we have as I said, great order intake in Q4, and we have a 2% to 8% growth outlook for this year. So they are obviously the need to restructure the cost base is.
David Mulholland: Not the.
David Mulholland: The same assay DSA in the <unk> business and then in CNS. The action is mostly centered around portfolio rebalancing you will have seen that we we made some divestments.
David Mulholland: Last year, and we are getting close to the type of portfolio that we look at are looking for the rebalancing is not 100% done yet we are still working on certain things and that's really the name of the game in CNS and then tech we already discussed because now with the without per deal and hopefully the rest coming soon we will see a significant.
David Mulholland: Stability in that business, so or all four businesses are in finding a fundamentally different place when it comes to the restructuring needs.
Okay. Thanks, and then one quick one for Marco again, just conscious that your predecessor had relied in the past on sale of receivables you did mention that in the in the statements.
Could you give us a sort of rough quantification of how much sales and receivables helped this very good cash flow performance in Q4. Thanks.
Marco: Thank you.
Marco: We actually have changed dramatically what comes to how we see sale of receivables.
Marco: The main thing would be due when we use sales receivables ease to mitigate risks.
Marco: So it can be country reasonable customer risk and.
Marco: Also the cost hedging cost for example in certain currencies.
Marco: So.
Speaker Change: Principally is quite different.
Speaker Change: And now in quarter four we mentioned that it was it wasn't meaningful increase so in some quarters, we see changes in Sandler renewables and it can be just like I said.
Speaker Change: It could be a specific country or customer will we see that it's good that we hedged ourselves by selling the receivables.
Speaker Change: Or in some cases actually.
Speaker Change: We see also that dam.
Speaker Change: Customers are or.
Speaker Change: Themselves paying for sale of receivables.
Speaker Change: And then of course it is.
Speaker Change: The no brainer to do that.
Thanks, Richard we will take our next question from Daniel Djurberg from Handelsbanken Daniel Please go ahead.
Thank you and good day, gentlemen, and congrats on a solid year end.
Daniel Djurberg: Thanks for taking my question I would like to ask a little bit.
Daniel Djurberg: On coming.
Daniel Djurberg: Coming back to the catch up on the IPR revenues.
Daniel Djurberg: Let's see.
And the question is really.
Daniel Djurberg: F.
Speaker Change: The year $1 4 billion low level that you aim for and technologists in 'twenty 'twenty four if they assist dependent also on the just signed the recently expired name and if it's also includes H P and Amazon that you have litigation for it or if you can more or less meets this $1 4 billion.
Speaker Change: And also.
Richard Kramer: Excluding these free.
Richard Kramer: Yeah.
Richard Kramer: It comes through different deals and exactly they and their levels. We cannot go into as you understand these are confidential, but we have guided on the best knowledge that we have today and would we see will happen throughout the year and we've been clear on that as well that this is including.
Richard Kramer: The catch up for those.
Richard Kramer: Oh deal that we just signed on and.
Richard Kramer: We also expect to sign a couple of other deals.
Richard Kramer: In tech launches that we have.
Richard Kramer: That has expired before the year end.
Richard Kramer: Perfect and a follow up if I may on the.
Richard Kramer: Broadband equity and access deployment program in the U S have you seen any news there in terms of a.
Financing and they are live order intake. So if it's still your view that it will be supportive on the second half of this year. Thanks.
David Mulholland: Absolutely it will be it will be a support the event.
David Mulholland: As we said earlier the impact starts to be when we talk about sales it starts to gradually come in in the second half of the year, we have a lot of staffing up in the pipeline that we are working on at the moment.
Douglas Smith: So second half of 'twenty four and then of course 25, it will play a meaningful role in Ah and Nash.
Douglas Smith: Hi.
Specialty fixed networks, but there could also be benefits to IP networks.
Optical networks.
Douglas Smith: Of course, we need to keep in mind that when we talk about the $42 billion total program value.
Douglas Smith: Approximately 10% of that is.
Douglas Smith: Is addressable to us.
Douglas Smith: The rest will go to something else like digging cables into the ground.
Thanks, Daniel we'll take our next question from Joseph <unk> from Barclays. Joseph Please go ahead.
Joseph: Alright, Thank you for taking my questions.
Joseph: And then the follow ups firstly on your free cash flow conversion.
Joseph: And therefore, either remains well below the long term target despite the boost from the IPO cash.
Joseph: <unk> payments I understand you talked about the moving parts with restructuring and some pre bank payments R&D happens.
Joseph: Are there any reasons for us not to expect a bigger working capital given the <unk> cycle I'm just wondering what are we missing here.
David Mulholland: Yeah, just like you mentioned as well that we will have the negative impact by the prepayments that we received in technologies in 'twenty three and then we expect also working capital to continue to have a positive impact.
David Mulholland: But these.
If you sum up these we believe that we are well into the range that we have guided which is improving from last year last year range that we guided 20% to 50% now it's 30% to 60% and then Youre asset that we believe there'll be a well in our long term guidance range as well so it's step.
David Mulholland: I stepped improvement than we see in the free cash flow conversion ratios and when it comes to comes to networking capital.
We already saw good release in Q4 last year, which was one of the drivers behind the strong cash flow in Q4, there is still additional potential there, but I'm just kind of saying that part of it was already at least in Q4. Then there is the 700 million prepayments in tech.
David Mulholland: Our $700 million, sorry, I'd take it back $700 million lower cash compared to say the net sales in 'twenty four and tech and there is restructuring cash outflow in 2024, and then since you mentioned the catch up payments. There you have to remember that that will be both cash.
David Mulholland: And revenue in 2004, so that does not improve the conversion it improves the absolute cash absolutely, but it does not improve the conversion.
David Mulholland: Thank you and then just a follow up on the.
David Mulholland: Beat project sitting in North America.
Just wondering how much contribution have you.
David Mulholland: To your right.
David Mulholland: And I guess from these projects.
David Mulholland: And also.
David Mulholland: Can you talk about <unk>.
David Mulholland: So you are saying for those projects.
David Mulholland: What's your visibility to the timing of these.
David Mulholland: Projects.
Yeah.
David Mulholland: As I said the timing is such that we start to see a top line effects of it in the second half of.
Gradually in the second half of 2024, and then then into 2025, we have a strong pipeline of opportunities.
Not mistaken there was something small in the order intake already in Q4, but that was small.
David Mulholland: While it is taking off gradually these things because they are politically driven they always take a take time first to allocate the money on the federal level then it goes to the state levels and then gradually it fluctuates the different opportunity opportunities with with carriers.
David Mulholland: We have not quantified exactly.
David Mulholland: How much of this would be indeed.
David Mulholland: Two 8% growth assumption.
David Mulholland: But as I said, it's H two driven.
David Mulholland: And it's not huge yet in 2024, it will grow gradually throughout the second half and then then.
David Mulholland: <unk> to 'twenty five.
Speaker Change: Thanks, Joseph we will take our next question from Artem <unk> from Seb Artem. Please go ahead.
Speaker Change: Yes, Hello, and thank you for taking my question.
Artem Beletski: I'd like to actually ask on Europe, yet development and looking at revenue transfer. So it seems to be the case that the declines have been accelerating also excluding technology related impact in Q4.
Artem Beletski: Could you maybe talk a bit more what is happening really Sarah is that also potentially some inventory that Jason which is ongoing onto market.
I mean, there I mean, there could be some inventory digestion, but the real issue in Europe, and Australia the weak economy.
Artem Beletski: Operators high leverage high interest rates.
Sarah: And consequently, there.
David Mulholland: Low appetite to.
David Mulholland: To invest.
The Big question is that when will that start to change of course lower interest rates would be great.
David Mulholland: To that end, but fundamentally.
David Mulholland: I believe that they will have to start investing again and of course, they are talking about it but we have not seen that much.
David Mulholland: Yet what I'm afraid and this is my big Big worry I mean, not that much about Nokia, but that's a European.
David Mulholland: There is a risk that Europe falls behind the rest of the world in terms of competitiveness because of the quality of digital infrastructure that we have.
Artem Beletski: The <unk> deployment is slower in Europe than in other parts of the world.
Artem Beletski: <unk> and operators understand it they are talking about it.
Artem Beletski: And just to be seen when that will start to change, but I'm convinced that it will change, but these things like mid band penetration in five J radio et cetera. It is clearly lower in Europe than in many other.
Artem Beletski: Parts of the world, but again, what we would hope to of course see that Oh.
Artem Beletski: The operator market in Europe would consolidate so that.
Artem Beletski: We would get a stronger financially stronger operators in Europe. There is one operator or four to 5 million inhabitants.
Artem Beletski: That is of course, a totally different level than in any other part of the world. They deem the others. There is a there is.
Artem Beletski: Depending on how you calculate a three or four operators.
One 3 billion people in China. There is three operators for 1.3 billion people and in Europe, We have one operator for four and a half million people. So the market is so fragmented that the destiny to get consolidated so that's one aspect of the picture, but then there are others that as I said interest rates et cetera.
Yep.
Artem Beletski: Yes.
Artem Beletski: The follow up would be actually relating on some good slides with you are making on switches thought.
Artem Beletski: Could you maybe comment on profitability of this business, how we should think about it is it more like all IP networks.
Artem Beletski: Watching what youre, making it up.
Artem Beletski: Well that is of course highly confidential when we get to one product group for one customer.
Artem Beletski: But of course all of this has been assumed in the targets that we have both short term or long term targets that we have put ourselves for.
Artem Beletski: DNI business IP business has good profitability and and.
The target so that we have for that business will of course stay there also including the growth.
Artem Beletski: In switching.
Artem Beletski: We will take our last question from Alexandre <unk> from Societe Generale. Please go ahead, if you don't mind keeping it to one question just given the time.
Artem Beletski: Yes. Thank you I'm just just a quick one to come back on.
Artem Beletski: Mobile networks very briefly.
Alexander Peterc: Could you give us a broad idea of when you expect mobile networks to kind of bottom out and flatten instead of 2025 events with.
Alexander Peterc: What has happened later, maybe another way of fostering this is you know.
Alexander Peterc: At what point do you expect the AT&T.
Alexander Peterc: With your footprint loss reserve.
Alexander Peterc: Offering from last year's decision to wash out of the base I know you gave some color on AT&T and all the puts and takes but just to give us more idea that okay.
Alexander Peterc: I mean, I understand the question very well, but.
Alexander Peterc: You will appreciate that it's extremely difficult to answer because as I said first of all we cannot comment the at&t's hei's and before we have concluded the negotiations that is one thing.
Alexander Peterc: And of course, we we expect to continue one way or another at least to continue to be a supplier there as well.
Alexander Peterc: Then there's the whole India question, William So right now going down what will happen in India, which operators will invest and.
And how much on when and how.
How will the <unk>.
David Mulholland: <unk>, if I may take place in India, etcetera, etcetera, and then there is this whole question of when will the data traffic will grow to a level where operators throughout the world, including in Europe will be forced to invest so it is simply too early to say that that when mobile networks would have read.
Alexander Peterc: The bottom our outlook for this year, we have wanted it to be a realistic that's why we are saying 1% to 4% comparable.
Comparable operating margin, but we are sticking to our longer term ambition to reach their spot semi also referred to in his question that with $10 billion sales with target the 10.
Alexander Peterc: 10% operating margin that's how we are modeling the business, but that does require that we also penetrate penetrate into non CSP segments in the second half of 2000 Twenty's.
Alexander Peterc: Thanks, Alex and thank you everyone for joining US today. This concludes the Q&A section in todays 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 opera.
Alexander Peterc: Writing factors, we've identified such risks in the risk factors section of our annual report on form 20-F, which is available on our Investor Relations website. Thank you for joining us.
Okay.
Alexander Peterc: Okay.
Alexander Peterc: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Alexander Peterc: Okay.
Alexander Peterc: Yeah.
Alexander Peterc: [music].
Alexander Peterc: Okay.
Alexander Peterc: Yes.
[music].
Alexander Peterc: Okay.
Alexander Peterc: [music].
Alexander Peterc: Yes.
Alexander Peterc: [music].
Okay.
Alexander Peterc: Uh huh.