Nokia published yesterday their Q3 2017 Financial results, that showed worse performance in the networks segment, and excellent performance of Nokia Technologies unit. With €483 million in revenue, Technologies post an operating profit of €390 million, which is more than the Networks Business. Nokia also said that it increased recurring net sales from patents to over a billion euros annually, doubling the amount compared to 2014.
As always, Nokia did a earnings call with investors, where Nokia CEO Rajeev Suri and CFO Kristian Pullola detailed the report and answered questions from investors. The most interesting part for us consumers is the Technologies division, especially phones so we will focus on it. If you are an investor interested in performance of the Networks unit, alongside Technologies, check the full transcript following the link at the end of the article.
First topic that Rajeev clarified is the scale back in Digital Media. Nokia announced that it is stopping the further development of OZO camera and hardware, and a logical question arose from that: What about OZO Audio? OZO Audio is exactly the business Nokia Technologies will focus on, and that’s licensing VR and Audio knowledge (patents) to interested parties. Nokia’s first customer is HMD Global, that uses OZO Audio on Nokia 8 and Nokia 7, and Rajeev added at the end: “(…) we see additional opportunities to expand [OZO Audio licensing] further in the future.”
“Shortly after the end of the quarter, we did just that by significantly scaling that work in digital media. We’re stopping development of future versions of the OZO camera and limiting our digital media activities to high margin technology licensing opportunities, including those for virtual reality ready 360 degree OZO Audio.
Technology licensing is all about engaging with other companies and using our know-how to help them build our innovations into their products. We already have one such customer for OZO Audio, HMD Global and we see additional opportunities to expand further in the future.”
Now to Digital Health. With the scale back on Digital Media, Nokia Technologies announced a greater focus on Digital Healt. As we all already know, Nokia acquired Withings last year, and since then we didn’t see much new products or improvements in that sector. To reduce all the business risks related to Withings’ goodwill, Nokia’s CFO Kristian Pullola announced that Nokia has taken an €140 million impairment charge related to purchase of Withings, reducing the goodwill related to digital health to zero. If you don’t understand why a company has to do goodwill impairment charges, it’s the law. If a goodwill (worth of some assets, usually of acquired company) has a smaller value than the purchase price, the company has to impair or write off some or all of the value. Nokia impaired practically all the costs related to Withings acquisition, and announced a clear start with a ” milestone-based investment plan for digital Health, adjusting spending to opportunity at every step.”
“In the third quarter, we also re-evaluated the speed at which we would progress in digital health. As a result, we have taken an impairment charge related to our purchase of Withings and Kristian will cover this topic in a bit more detail. But we still believe that we have the technology and brand necessary to make headway in what remains an interesting area of potential growth for Nokia. We have a milestone-based investment plan for digital health and we will adjust spending to opportunity at every step as we proceed.”
And now to Nokia branded phones made by HMD. Apart from mentioning that net sales from HMD increased in Q3 compared to Q2, Rajeev Suri said that HMD is seeing outstanding Net Promoter Scores for Nokia smartphones, and that gives him confident about the long term potential of their deal. Net Promoter Score is a metric that calculates customer satisfaction and growth of the business. It’s simply put the little survey that pops up asking you to give a score between 1 to 10 for your Nokia device. The higher the score, the batter the metrics. You can learn more about NPS here.
“Early progress in brand licensing is also good as HMD continues with its fast ramp up of products and distribution. HMD is seeing outstanding Net Promoter Scores for its new smartphones, which gives me confidence about the longer term potential of our deal with them.”
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