Interesting read: By selling its network business, Nokia might become an analysts dream

Inderes analyst Mikael Rautanen published an interesting articles exploring the path of Nokia selling its core networks business and transforming into a software company. In its 155-year long history, Nokia has been through a lot of transformations and the company has always managed to come on top of the problems. So, another business transformation wouldn’t be that surprising.

Nokia’s business at the moment is divided into 3 groups: Networks, Software and Nokia Technologies, with Nokia Networks accounting for 75% of the revenue, but with a negative or single digit positive profit margin. Compared to that, both the Software and Nokia Technologies have a lot less net sales, but higher profit margin. Nokia Technologies has a 80%+ profit margin, because that unit is responsible for patent licensing, while Nokia’s independent software business operated at with a 11.4% profit margin in the last quarter.

The analyst makes the argument that in an ideal situation, Nokia might sell the Networks unit and use the cash from the sale to position itself as the leader in the virtual network market. Right now, the  software and services market for telecoms is worth 66 billion dollars, and Nokia is already the relative leader with 5 billion dollar worth market share, but that’s just 7.5% of the whole market. The strong cash position Nokia would have after a Networks sale would allow the company to consolidate that market by purchasing competitors and focus on other, more profitable markets like Enterprise IoT.

As Mr. Rautanen points himself, this is more of a dream scenario looking from outside, because it is uncertain what effect will the sale of Networks have on Nokia Technologies and it is still questionable if Nokia could find a buyer for a really wide portfolio that Nokia acquired with the acquisition of Alcatel-Lucent.

Let’s look a bit at the numbers the new Nokia might have. The new, software-oriented Nokia might have a revenue of 4 billion euro annually, with a 40% profit margin. Nokia’s cash position would increase to 13 billion euro from the sales of Nokia Networks in this scenario and the market capitalisation would be estimated to around 30 billion dollars, which is 10 billion more than the market cap right now.

Of course, Networks are in Nokia’s DNA, but so was paper production, rubber production, TVs and phones, but the company still lives and keeps on innovating. I would highly recommend reading the article on Inderes and entertaining this thought, even though it might not come to fruition.