In 2022, HMD Global, known for Nokia phones, faced significant financial challenges. That was visible in the FIH’s financial report for 2022. Now HMD has finally published its financial report for 2022 which verifies the problem and shares some details about its relationship with Nokia.
HMD’s net sales for 2022 decreased by 12.2% to 1.257 billion euros compared to 1.433 billion euros the previous year. The company also reported an operating loss of 76.9 million euros in contrast to a profit of 12.9 million euros in 2021, which marked its first profitable year.
By the end of 2022, HMD Global had 35 million euros in cash, 37 million euros in inventory, and nearly 55 million euros in trade receivables. However, they owed more than 424 million euros in purchase debts, relying heavily on funding from suppliers.
They also reported a decline in device sales, with approximately 40 million devices sold in 2022 compared to 56 million in 2021, marking a 29% decrease.
This made HMD Global take some measures which resulted in a change in leadership in 2022 when Jean-Francois Baril replaced Florian Seiche as CEO. Even the auditor PwC expressed uncertainty about the continuity of operations taking into account all the financial troubles.
However, HMD Global’s profit for 2022 was 33.6 million euros, primarily due to a valuation change related to their financing, which did not affect their cash flow but had an impact on financial income.
HMD Global operates under two segments: Smart Devices and Entry Devices. In 2022, Smart Devices generated 441 million euros in turnover, whereas Entry Devices generated 815 million euros. Entry Devices proved to be more profitable, with a gross margin of 137 million euros and a product margin of 111 million euros.
Despite challenging circumstances, HMD Global increased its research and development investments in 2022 to 80 million euros, up from 60 million euros the previous year, and this is commendable. Notably, the United States saw increased smartphone sales for the company in 2022. We need to mention that HMD also started paying more attention to the software security of their devices and shipped a part of the assembly to Europe.
Regarding their licensing agreement with Nokia, HMD Global announced changes in August 2023. They will start producing devices under their own brand and potentially other partners, moving away from exclusive reliance on the Nokia brand. The licensing agreement for Nokia brand products is expected to continue until March 2026 for Entry phones. This is a huge change since the original licensing agreement should have ended in March 2027. It seems that its agreement with Nokia has included target levels of annual royalty payments, the failure of which has given Nokia the unilateral right to terminate the licensing cooperation. However, over the years, HMD has not completely succeeded in reaching these target levels, and that might have resulted in a reshaping of HMD’s strategy.
The board expressed concerns about HMD Global’s financial stability, especially with regard to its multi-brand strategy and creditor flexibility regarding overdue debts. HMD Global has taken steps to manage expenses and optimize its supply chain but relies on external factors to secure its future. Changes in their licensing agreements and efforts to improve financial stability will be crucial for their future.
More details on this are available in the nicely written article by Mobiili.fi.