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How Nokia Makes Its Money Today
How Nokia Makes Its Money Today
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Subtitle (142)
0:00
Nokia doesn’t make phones anymore. But it still makes billions.
0:10
Today, Nokia is no longer a consumer brand. Instead, it sells the technology that powers
0:15
the world’s networks — from mobile infrastructure and fiber connections,
0:19
to the software and patents behind modern connectivity.
0:22
This is a company with 160-year-old history, it's really about making sure we're delivering
0:28
market leading innovation and delivering successful outcomes for our customers.
0:33
That’s a very different company from the one most people remember. Because for years,
0:37
Nokia didn’t just compete in mobile phones, it dominated them.
0:41
At its height, Nokia was a force to be reckoned with in the mobile phone industry.
0:45
But the smartphone era changed everything.
0:48
When iPhone and Android entered the phone business, it made it
0:53
really difficult to understand who are Nokia's main competitors.
0:58
In 2013, Nokia made a dramatic decision.
1:01
It announced the sale of its handset business to Microsoft.
1:05
But Nokia didn’t disappear. Behind the scenes, the company still had something extremely valuable.
1:11
The asset they had was networks. So, they had no alternative, they had to lean into it.
1:15
Decades of expertise building telecom infrastructure and a
1:18
portfolio of patents worth billions.
1:21
So how did Nokia go from making phones to becoming one of the companies powering global connectivity?
1:38
I’m Arjun Kharpal and I’ve been covering the business
1:41
of tech for more than a decade — from Silicon Valley to Shenzhen.
1:44
In this episode, I’m looking at Nokia — not as the company it used to be,
1:48
but as the business it has become.
1:55
Reinvention isn’t new for Nokia.
1:57
Founded in 1865 as a Finnish paper mill, Nokia became Nokia AB in 1871 before
2:04
expanding into rubber, cables and electronics. Its shift into telecoms began in the 1960s,
2:11
accelerating after a 1967 merger that formed Nokia Corporation.
2:16
By 1981, Nokia had helped launch the world’s first multinational cellular
2:21
network — and was already building some of the earliest mobile devices.
2:25
They had fingers in all sorts of pies. They were looking at TVs,
2:28
they were looking at mainframe computers, lots of other different businesses that they had.
2:32
But it was mobile phones that made Nokia a global giant.
2:35
By the late 1990s, the company had overtaken Motorola,
2:38
and by 2000, it dominated the global market with nearly a third of all mobile phone sales.
2:45
That dominance drove extraordinary growth.
2:47
Nokia was worth more than $290 billion at the time — making it Europe’s most
2:53
valuable company, and accounting for a significant share of Finland’s economy.
2:58
At their peak, you know, 40% market share,
3:00
an unthinkable chunk of a massive market, a powerhouse of a company.
3:06
If you had a Nokia phone and you were talking to your friends, you would talk in terms of numbers.
3:10
Have you got a 2110, a 3310, a 6110, a 5110? They were so omnipresent in the phone space.
3:17
Nokia had been successful for several years, and it had always won the game. If you had a
3:24
Nokia business card, you could meet with the President and Prime Minister whenever
3:29
you wanted and this in itself created over confidence and hubris at the top.
3:34
And that success would shape the decisions that followed.
3:37
But by the late 2000s, the market was changing.
3:40
The launch of Apple’s iPhone marked the beginning of a new
3:44
era — and Nokia’s dominance started to slip.
3:48
And we are calling it, iPhone
3:53
Despite the initial skepticism towards the iPhone,
3:56
it kind of quickly became clear that this was something. No one could really see it. So,
4:07
Nokia initially was like, "Yeah, we get it. It's kind of interesting, but we're going to be okay."
4:12
When the iPhone came out, Nokia’s top management had very good understanding of its specifications
4:20
and potential impact on market share, and it put a huge pressure on the middle management.
4:26
And because of that, they tended to embellish their communication or make over optimistic
4:32
promises to top managers or even distort the reporting. Top managers were constantly
4:38
under the illusion that Nokia’s response to the iPhone is almost ready for launch.
4:44
Having reported strong growth through the early 2000s, Nokia’s business began to decline.
4:50
Mobile phone revenue fell from more than $36 billion in 2007 to just over $20 billion by 2012.
4:58
Over the same period, its share price collapsed
5:01
leaving the company with its lowest valuation in decades.
5:07
The company that once defined the mobile phone era was suddenly struggling to compete.
5:12
And in 2013, Nokia made a dramatic decision.
5:15
The deal getting all the attention today is Microsoft buying Nokia's
5:18
mobile phone business for more than $7 billion.
5:22
Everyone's still buzzing about its Microsoft $7.2 billion acquisition of Nokia's mobile phones unit.
5:28
Meantime, Microsoft buying Nokia's handset business for more than $7 billion.
5:33
But while Nokia’s phones may have disappeared from the shelves, the company itself didn’t.
5:38
Behind the scenes, Nokia still had something extremely valuable. Decades
5:42
of expertise building telecom networks and a portfolio of patents worth billions.
5:46
The asset they had was networks. So, they had no alternative, they had to lean into it.
5:50
It was striking that when Nokia sold their phone business to Microsoft,
5:56
they were able to find a good home for the money they gained, and that was what
6:00
they essentially used to fund that buy-out of Siemens and bring the business back in house.
6:06
In 2014, the year it sold its handset division,
6:09
Nokia generated around $16.8 billion in revenue from its remaining businesses.
6:14
But to scale that business, Nokia made its biggest move three years later.
6:20
Together, Alcatel-Lucent and Nokia intend to lead in next generation technology and services with
6:27
the scope to create seamless IP connectivity for people and things wherever they are.
6:33
In 2016, it acquired Alcatel-Lucent for €15.6 billion — dramatically
6:39
expanding its telecom infrastructure business.
6:41
The acquisition of Alcatel-Lucent, which gave them optical and fixed networks,
6:46
so they became not just a wireless network player, but a broader player. It's a big diversification,
6:52
because suddenly Nokia was in a whole load of different things that really
6:57
look kind of similar, maybe to a finance person, but actually are
7:01
fundamentally different kinds of businesses with different ebbs and flows and timelines.
7:07
The deal pushed Nokia into the top tier of global telecom equipment providers,
7:11
increasing its market share to roughly 24%.
7:14
Today, that infrastructure business is at the center of Nokia’s strategy.
7:18
Instead of selling devices to consumers,
7:20
Nokia now sells the technology that telecom operators use to build and run their networks.
7:26
This is a company with 160-year-old history. We're uniquely positioned as a Western provider
7:31
of telecommunication's infrastructure but really making ourselves a global leader in
7:35
connectivity infrastructure, which is our core focus and strategy in this new phase.
7:41
Since resetting its strategy, Nokia’s business has stabilized.
7:44
In 2021, the company reported $26.3 billion in net sales and
7:49
$2.6 billion in operating profit — a margin of around 10%.
7:53
And it has remained consistently profitable since.
7:56
Even as the telecom equipment market slowed, Nokia reported $1.8 billion
8:01
in operating profit in 2023, while its closest rival Ericsson posted a loss.
8:06
That stability has helped Nokia rebuild its value.
8:10
But the way Nokia makes money today looks very different from the past. Instead of relying on a
8:15
single product, the company now generates revenue across multiple parts of the global network.
8:20
Today, Nokia is a business that covers fixed markets,
8:23
so fixed broadband, also data center and optical connectivity, and also mobile networks.
8:29
And they have a licensing business as well,
8:31
which is very high margin building on the IP they built up over decades.
8:35
We have multiple markets to grow into, as well as our core telecommunications
8:40
business and the evolution of mission critical and defense customers.
8:45
Today, Nokia makes money in three main ways.
8:48
The largest is its networks business,
8:50
building and running the infrastructure that powers mobile and broadband connectivity.
8:55
That division generates the majority of Nokia’s revenue.
8:58
Then there’s cloud and network services, helping operators manage and optimize those networks.
9:04
But the most unique part of Nokia’s business is its patents.
9:08
With more than 26,000 patent families, including thousands essential to 5G,
9:14
Nokia earns licensing revenue from companies across the mobile ecosystem.
9:18
And because those patents are already developed, much of that revenue flows straight to profit.
9:24
In effect, Nokia is embedded across the infrastructure of modern connectivity.
9:29
From the networks that carry data, to the technology inside the devices that use it.
9:34
This is a market that we're expected to now grow over 25% per year for the foreseeable
9:40
future. So that's really where we see tremendous growth and scale, and that positions us to make
9:45
the kind of ongoing investments in R & D, in manufacturing and building the capabilities
9:51
that we think will differentiate the company, but also enable our customers to be advantaged,
9:57
as they're scaling AI training and obviously inferencing applications,
10:02
not just for what we see today with AI, but the advent of physical AI, which is coming.
10:06
Nokia is investing heavily in the technologies that will define the
10:10
next generation of connectivity. From improving 5G, to exploring what comes next.
10:16
Nokia’s bet is ambitious. AI will be built into the base station. The real debate is
10:23
around whether there is a business today or in the next three or four years for small, mini
10:31
data centers to run enterprise applications. And that’s where the debate is at the moment. Nokia
10:38
could make the market for AI RAN in conjunction with Nvidia, and yet not win out long term.
10:44
In the next episode, we look at how the company
10:47
that once dominated mobile phones lost its lead in the smartphone era.
10:51
When the technology changed, things got more complex and
10:55
it was difficult for top managers to understand and accept that the
11:00
capabilities that Nokia had were no longer optimal in the new conditions.
11:07
And in the final part, we explore Nokia’s next big bet — and whether it can compete
11:12
in the race to define the future of global networks.
11:16
The whole future is AI native networks.
11:18
It's going to be, we think,
11:20
fundamentally different than what has been delivered with the prior generations.
