In contrast to a depressing global telecom equipment market forecast, the Indian telecom companies may actually make true the predictions of an equity strategist at a leading Indian bank, profits will improve meaningfully, like a phoenix that rises again from the ashes.
The telecom equipment market continues to be dominated by four players, Huawei, Ericsson, Nokia, and ZTE. The combined global revenues in 2016 were Rs. 969,118.11 crore, an increase of 23.97 percent from Rs. 781,744.65 crore in 2015. Cisco Systems, Juniper Networks, Samsung, HPE, IBM, and Accenture constitute an additional estimated combined 15–20 percent market share.
Among the top four, globally, Huawei continued to lead the market in revenue at a 52.97 percent share in 2016, up from 50.06 percent in 2015. It largely gained market share from Ericsson, which slipped from 24.95 percent in 2015 to 18.15 percent in 2016. Nokia gained market share from 12.26 percent in 2015 to 18.68 percent in 2016. ZTE fell from 12.73 percent in 2015 to 10.2 percent in 2016. The conversions from foreign currencies into Indian rupees have been made at December 2017 rates, hence possibly leading to minor inaccuracies.
In India too, the trend was somewhat similar. Among the top four, Ericsson lost market share by about 11.26 percent from 37.54 percent share in 2015 to 26.28 percent in 2016, to all the three players, Huawei, Nokia, and ZTE, Huawei climbed from 31.96 percent share in 2015 to 38.66 percent in 2016, Nokia gained share from 29.9 percent in 2015 to 30.4 percent in 2016 and ZTE gained appreciably from 0.6 percent in 2015 to 4.66 percent in 2016. The combined India share of the top four players in the global market declined from 3.6 percent in 2015 to 3.33 percent in 2016 in revenue terms.
The equipment vendors have been under pressure in India in the past year due to the impending consolidation and the subsequent fall in telcos’ spending on network. Moving forward too, it may lead to revaluation of contracts with network gear makers in the near term, as carriers would look at combining synergies and removing redundancies. While optimizing the network and bringing in operational efficiency on a circle-to-circle basis, they may have to select between vendors running parallel service and supply contracts and may even redistribute geographies between suppliers.
Moving forward, the industry expects to see stability in about a year from now. The big telcos will invest on LTE, which will completely take over in the next 3-4 years. And 5G will come in India around 2020–2022.
It is a country where data consumption on mobiles is already amongst the highest in the world. It is about 4GB per month, and will go up to 11 GB in the next 6 years by 2022. There are 290 million mobile broadband subscriptions. Subscribers will migrate to 3G/4G. The networks will continue to be upgraded.
Bloomberg reports that investors are piling into India’s leading wireless carriers, betting that a shakeout in the world’s second-largest mobile market has started a recovery that will not be derailed by the need for big capital spending. Aditya Birla Sun Life Asset Management Co., SBI Funds Management Pvt., HDFC Asset Management Co., and L&T Investment Management Ltd. are among those that have bought more of Bharti Airtel Ltd, making it the second-best performer this quarter on India’s benchmark index. Morgan Stanley in an October 22 report said that India has become its preferred Asian telecom market, given price increases by newest entrant Reliance Jio Infocomm Ltd and faster-than-expected industry consolidation.
Bharti Airtel raised its capital spending forecast by 25 percent to Rs. Rs. 25,000 crore for the year to March 2018. Deutsche Bank AG predicted in a November 1 report that a proposed combine of Vodafone India and Idea Cellular may have CapEx of Rs. Rs. 12500 crore annually in the medium term. Reliance Jio announced that it would spend about Rs. Rs. 7,000 crore on CapEx every quarter for the next few quarters.
The new telecom policy, which is in the offing is expected to make processes simpler for overseas investments, while enabling sustained investments into networks and infrastructure, by carriers who will have to upgrade to 4G, prepare for 5G and explore all emerging technologies to more than double India’s Internet user base to 800 million users. The government has committed that it is looking at how the policy, supported by an amiable regulatory environment enables sustained investment in infrastructure and networks.
The policy makers are also firm on reducing dependence on imports. “We need to make the core infrastructure for a telecom networks (locally). There are some companies that have the capability but we need to support the much more. But we also want to make India a manufacturing hub for exports. We will have to lay the building blocks for this to develop over the years to come,” asserted Aruna Sundararajan, telecom secretary recently.
The global telecom equipment market is likely to be weak next fiscal year ending March 2018 as well, and may only regain the size it reached last fiscal through March 2016 of €119 billion, by 2021, opine experts. In contrast, with the Indian market anticipating increased investment and spending, thrust on import substitution and an aggressive stance on 5G adoption, it will be interesting to see how things pan out over the next couple of years.
It is a mixed bag when it comes to Chinese tech giant Huawei, where profits are largely flat and sales continue to rise.
Net profit edged up 0.4 percent to Rs. Rs. 36,347.1 crore (CNY37.1 bn) in 2016, while overall revenue jumped 32 percent to Rs. Rs. 513,382.71 crore (CNY521.6 bn) according to the company. Profit growth was much weaker than analysts expected, though sales came in line with the company’s own guidance released earlier this year.
Huawei holds firm as the world’s third-largest smartphone maker, but the company is starting to feel a pinch. It shipped 139 million smartphones during 2016, and reported Rs.167,485 crore (USD 25.9 billion) in annual revenue. Both profit and sales are no longer rising as quickly as before, and analysts say increased spendings on R&D and marketing are beginning to thin out margins. Indeed, net profit margin sat at 7.1 percent for 2016 – the lowest rate in at least a decade.
Huawei reported that its carrier, enterprise, and consumer business groups (BGs) each achieved solid year-on-year growth. The enterprise business of Huawei grew 47.3 percent, consumer business 43.6 percent, carrier business 23.6 percent, and other business 48.6 percent in 2016 compared to business done in 2015. More than half of Huawei’s revenues come from its telecoms carrier arm, although this proportion has been falling over the past few years.
Outlook. The company has set high targets, aiming to reach Rs. 969,992 crore (USD 150 billion) in sales by around 2020. To do so, it may need to rethink its pricing strategy. Huawei has in the past lowered the price of its offerings in order to remain competitive.
Analysts say Huawei’s investment in R&D, particularly in developing 5G networks, put the company on track to lead the way in setting overall industry standards – a move that could turn quite positive for the firm’s financials.
Huawei is also developing in line with a larger China initiative, dubbed Made in China 2025, which aims to grow 10 key high-tech sectors and support growth.
The United States remains an important market for Huawei as the company continues to seek growth, analysts say. But that as well remains an uphill battle –the company holds only one percent of the overallmarket share when it comes to smartphones, lagging far behind leaders like Apple, according to data from Canalys. Concerns over national security have also continued to weigh on its expansion into the United States, according to experts.
H1-2017. Huawei has announced its business results for the first half of 2017. In the first 6 months of this year, Huawei generated a revenue of Rs. Rs. 27,879.79 crore (CNY283.1 bn), an increase of 15 percent over the same period last year. The company’s operating margin was 11 percent.
Huawei achieved solid growth across all three of its BGs in the first half of 2017. The company is expected to maintain its current momentum, and round out the year in a positive financial position.
In the carrier business, Huawei continues to focus on enabling customer success and to help global carriers drive digital transformation in all industries. Its business solutions help carriers lower the cost of their network construction from end to end. The company is leading collaborative innovation in 5G, continuing to innovate in 4.5G, and seizing key opportunities arising from video, B2B, and the Internet of Things (IoT). With Huawei’s support, carriers are building all-cloud networks and unlocking the potential of their existing networks. Together, Huawei and carriers are following the path toward new, value-driven growth.
In the enterprise business, Huawei continues to build open, resilient, flexible, and secure ICT platforms. More and more industry-leading companies have chosen Huawei as their partner for digital transformation. As new developments in ICT continue to accelerate the digital transformation of industries, Huawei’s innovative products and solutions, including cloud computing, all-cloud networks, enterprise wireless, IoT, big data, storage, and servers, have been widely adopted in sectors like government, finance, electricity, transportation, manufacturing, and especially safe city. Huawei has also stepped up efforts and investment in the areas of industry alliances, business alliances, open source communities, and developer platforms in order to build an open digital ecosystem.
Huawei’s Consumer BG has maintained its tight focus on the needs of consumers. Working with top global partners, the Consumer BG focuses on meaningful digital-era innovations that enable the delivery of smart gadgets offering an inspired experience to global consumers. Huawei’s flagship products, such as the Huawei Mate 9, Huawei P10, Honor 9, and Huawei MateBook E/X/D, have been well-received by consumers worldwide. The company has achieved new levels of global recognition as a premium brand.
Huawei is committed to building an open ecosystem and exploring the future with its partners. The company will continue its pipe strategy and focus on ICT infrastructure in order to create value for customers and achieve sustainable growth.
The company’s Asia-Pacific revenues jumped by 36.6 percent to about Rs. Rs. 66,474.25 crore (CNY67,500 mn) at the end of 2016 due to growth of telecom infrastructure projects in countries like India and Thailand and tablet device business in Japan.
Because of lack of any specific data on India, we assumed that Huawei India continued to constitute 18.5 percent of its Asia-Pacific revenues in 2016 (same as 2015, when Huawei India original figures had been made available), which translate to the Indian revenues being Rs. Rs. 12,487.5 crore. This would be a 38.75 percent growth over 2015 (revenues were Rs. 9000 crore) in India, as against a 36.6 percent declared growth in 2016 in the Asia-Pacific region. India’s contribution to global sales has steadily increased from 2.15 percent to 2.43 percent over the last 5 years.
Some major orders procured since April 2016.
Vodafone India. In October 2016, the company bagged a three-year managed services contract worth around Rs. 1470 crore to provide managed services, including network operations, to Vodafone in Kerala, Tamil Nadu & Chennai, and Odisha circles. It would also offer network operations in Andhra Pradesh and Delhi.
Bharti Airtel. In September 2017, the gear maker partnered Bharti Airtel for the deployment of Massive MIMO in Bangalore.
Reliance Jio. In October 2017, the vendor held dialogue with top Indian telecom operators to promote joint innovation around the 5G technology, having kicked-off 5G-related technology trials in the country. It was also in talks with Reliance Jio to provide equipment for the latter’s fiber-to-home service, which is likely to be rolled out soon.
“Just as progress in fields like shipbuilding, cartography, and navigation made long-distance sea travel possible, the rise of information and communications technology like the Internet of Things, ultra-broadband, the cloud, and artificial intelligence has launched us into a great new age of digital exploration. As we continue to explore and make new breakthroughs, over the next 20–30 years the world as we know it will become intelligent – a world where all things can sense, all things are connected, and all things are intelligent.”
Rotating and Acting CEO
“We will progress faster toward a better connected, intelligent world. It is difficult to imagine the depth and breadth of the changes to come. Physical connections will be everywhere, playing an integral role in society. Applications are enabling new degrees of agility and efficiency, driving business forward. Value-driven collaboration and innovation are giving rise to diverse business ecosystems. And inspired experience will enrich our emotional connections, adding a new depth of human touch to our lives. As all of these new connections drive the digital transformation process, they will reshape society, the economy, business, and the way we create.”
Chairwoman of the Board
Ericsson provides high-performing solutions for networks, IT & cloud, and media. The company provides infrastructure, services, and software to the telecom industry and other sectors.
Business in 2016
In 2016, net sales decreased by 10 percent mainly due to lower demand for mobile broadband, especially in markets with a weak macroeconomic environment. Sales declined in all three segments. Both operating income and margin decreased compared to last year due to lower sales and lower gross margin, partly offset by lower operating expenses.
IPR licensing revenues were SEK 10.0 billion. IPR licensing revenues in 2015 were positively impacted by a global patent license agreement signed with Apple, which included an initial payment.
Full-year sales for the targeted growth areas: IP network, cloud, OSS and BSS, TV and media, as well as industry and society, were flat and accounted for 20 percent of group sales. The global cost and efficiency program, first initiated in November 2014, and expanded in 2016, progressed according to plan. The target of the program is to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion in the second half of 2017. Operating expenses in 2016 decreased to SEK 60.5 billion, which included restructuring charges of SEK –4 billion. Ericsson delivered a full-year cash flow from operating activities of SEK 14.0 billion, exceeding the 70 percent cash conversion target.
During 140 years, Ericsson has delivered customer value by continuously evolving its business portfolio through its core assets – technology and services, global scale, and skills. This, in combination with its business expertise, has resulted in a profound technology and services leadership. Ericsson believes that the company’s technological and financial capability to adapt and the will to change are major competitive strengths. Ericsson’s ability to transform its core business and its ambition to enter into new and adjacent markets are key to generating customer and shareholder value. In 2016, approximately 67 percent of Ericsson’s business was related to services and software sales, compared with less than 50 percent 10 years ago.
This change reflects the ongoing transformation from a hardware-centric business to one where the share of the software and services business continues to increase. However, competitive hardware also remains an important performance differentiator. The number of product platforms has been significantly reduced over time, while the scope has extended from mainly mobile infrastructure and related services to include IT, cloud, support systems, media, and new industry verticals. The workforce is also going through a transformation, reflecting the company’s business and competence shift. In 2016, approximately 15,000 employees joined Ericsson and about 20,000 employees left the company, resulting in a net reduction of 4800 employees.
Profit improvement. In order to restore profitability, Ericsson is focusing on three areas: efficiency improvements, monetize networks, and build success in IT & cloud, media and industry, and society. The cost and efficiency program is progressing toward the target and has been expanded to adjust the organization to lower sales volumes.
5G. Ericsson is at the forefront of the 5G market, having signed 28 MoUs (memorandum of understandings) with operators, and with 20 different industry partners and some 45 universities and research institutes involved in the development of 5G. In addition, Ericsson is taking a leading and active role in 5G standardization globally. The company expects 5G in large commercial deployments by 2020.
Creating the network of the future the Ericsson and Cisco partnership signed by two strong and complementary partners in November 2015, covers areas such as routing, data centers, networking, cloud, mobility as well as management and control and global services capabilities. The strategic partnership has signed more than 100 deals globally.
Ericsson’s main customers are telecom operators around the world, representing approximately 90 percent of revenues in 2016. In addition, the company has customers in the selected industries of utility, transport, and public safety. The IPR licensing business customer base is mainly handset suppliers.
“Operators continued to be cautious with investments in equipment as their revenues overall have come under pressure. This was reflected in our results in 2016 which did not reach our expectations. The short-term reality is that growth is limited and we have to adjust to that and prioritize what to focus on. The first task is to establish profitability and adjust the size of our operations to the demand level.
Only consistent profitability and strong cash flow will provide us the freedom to continue investing in our research & development and into our future growth. In the near term, this means we prioritize profitability over growth. We aim at establishing competitive cost structures across all parts of our operations and our portfolio and continue to execute on our ongoing cost and efficiency program. We are also reviewing our overall priorities to focus on the most attractive areas. This effort involves key teams in the company, to secure quality of decisions and speed in implementation once decisions are made. All these activities are done to ensure that we remain at the forefront of technological development – building on the combined strength across products, services and solutions.
Our task is to make our customers successful, which in turn will make us successful. It may sound like a management cliché, but we need to make decisions foremost with the customer in mind, thereafter Ericsson and finally the individual business unit. We want to be a partner to our customers as it is through partnership we can add true value. It should be easy to do business with us, and we need to reduce the complexity and simplify our processes in order to be more agile in our responses to customers.
President & CEO,
From 2017, the networks segment consists of two business units, network products and network services. The overall focus is on evolving and managing access networks, including the development of hardware and software for next-generation radio access and transport networks. Networks will be reported separately within the new reporting structure from 2017 .
IT & Cloud
The IT & cloud business includes two business units: IT & cloud products and IT & cloud services. The focus in IT & cloud is to help telecom operators and selected enterprises through the digital transformations ahead. This is handled mainly in three domains: support systems (OSS and BSS), telecom core, and IT cloud. IT & cloud will be reported separately within the new reporting structure from 2017.
Change in Reporting Structure from 2017
Ericsson implemented a new organizational structure in 2016. The new structure builds on the company’s technology leadership, services leadership and global scale and skills, and it supports cost reductions and efficiency improvements. It also removes duplication across portfolios and capabilities.
From January 1, 2017, financial reporting is done according to a new structure, with three new financial reporting segments, networks, IT & cloud, and media.
Sales in India declined by 20 percent in 2016, compared with 2015. This was against its global decline of 10 percent in the same period. Mobile broadband sales declined mainly driven by delayed spectrum auctions which delayed operator investments. Professional services sales remained stable with operators’ higher focus on network quality and cost optimization.
Some major orders procured since April 2016.
Idea Cellular. In February 2016, the vendor secured a two-year 4G-network deployment contract for the circles of Maharashtra, Madhya Pradesh, the Northeast and Himachal Pradesh. The requirement was to transform the telco’s existing mobile radio access and core network infrastructure across nine circles for 2G and five circles for 3G. Under the contract, it would provide equipment, software, and a range of professional services, including project management, systems integration, and supervisory managed services for 4GLTE in these four circles. And install its multi-standard RBS 6000 radio base station, which supports GSM/EDGE, WCDMA/HSPA and LTE in a single cabinet and upgrade core network and operations support systems (OSS).
Bharti Airtel. In October 2016, the vendor bagged a three-year managed services contract, estimated at `Rs. 3350 crore for the service provider’s 2G, 3G, and 4G LTE networks across 22 circles. As per terms of the contract, Ericsson would assume responsibility for field maintenance, network operations, network optimization, passive maintenance for Airtel owned sites and manage over 150,000 sites physical sites, along with 150,000 logical sites across the country.
Reliance Communications. In February 2017, the vendor signed an eight-year full-scope managed services agreement for `Rs. 6700 crore to operate and manage the wireline and wireless networks for Northern and Western states of India. As per the contract, the vendor would manage the day-to-day operations across wireline and wireless networks and take over responsibility for field maintenance, network operations, and operational planning of Reliance Communications’ 2G, CDMA, and 3G mobile networks.
Vodafone India. In February 2017, the vendor was awarded a 4G deployment contract worth `2040 crore for UP West, Rajasthan, Odisha, North East and Assam telecom zones. Ericsson, under this contract, would deploy its full radio system portfolio that offers 50 percent improved energy efficiency.
Bharti Airtel. In November 2017, the company partnered with Bharti Airtel for 5G technology for the telecom giant’s India operations. As part of the partnership with Airtel, Ericsson would work with Bharti Airtel on creating a strategic roadmap for evolution of the network to the next-gen 5G technology.
- Börje Ekholm was appointed new President and CEO effective January 16, 2017.
- Effective July 25, 2016, Jan Frykhammar was appointed new President and CEO when the former director and president and CEO Hans Vestberg left his positions.
- Effective July 1, 2016, new members of the Executive Leadership Team were appointed following a series of organizational and structural changes to strengthen strategy execution.
- Kristin S Rinne and Helena Stjernholm were elected new members of the Board at the Annual General Meeting 2016.
Nokia started 2016 primarily with a focus on mobile networks and patent licensing and ended the year as a fundamentally different company, with a complete portfolio to deliver on its new strategic aims. The Board held 27 meetings in 2016 to, among other things, address the strategic direction of the company, resolve on acquisitions and other transactions introduced by the management, and execute on its capital structure optimization program.
In 2016, the company also continued to execute its two-year, EUR 7 billion capital structure optimization program, initially announced in October 2015 and updated thereafter in 2016. The program was established following the Board’s thorough analysis of Nokia’s potential long-term capital structure requirements, focusing on shareholder distributions and de-leveraging while maintaining Nokia’s financial strength.
In November 2016, in connection with Capital Markets Day held in Barcelona, Spain, the Board announced its new strategy Rebalancing for Growth. The strategy taps six future megatrends that have been identified, and consists of four pillars: lead in high-performance, end-to-end networks with communication service providers; expand network sales to select vertical markets needing high-performing, secure networks; build a strong, standalone software business; and create new business and licensing opportunities in the consumer ecosystem. After 5 years of transformation, including four major transactions and a successful integration of Alcatel Lucent, Nokia has renewed itself once again, with a strong vision to lead, solid position to compete, and new possibilities to create shareholder value.
Performance – 2016
In the context of a challenging market and a major integration effort, Nokia performed well in 2016. The networks business delivered an operating margin of 8.9 percent in 2016, and Nokia Technologies’ net sales increased by 3 percent to EUR 1.1 billion in 2016. While overall sales were down compared to sales of both Nokia and Alcatel Lucent in 2015, profitability held up well.
Since the closing of the Alcatel Lucent acquisition in early January 2016, the company has combined global leadership in mobile and fixed network infrastructure with the software, services, and advanced technologies to serve customers in more than 100 countries around the world. It is driving the transition to smart, virtual networks and connectivity by creating one single network for all services, converging mobile and fixed broadband, IP routing and optical networks, with the software and services to manage them. Its research scientists and engineers continue to invent new technologies that will increasingly transform the way people andcommunicate and connect: 5G, ultra broadband access, IP and software defined networking, cloud applications, IoT and security platforms, data analytics, as well as sensors and imaging.
Through its five business groups, it has a global presence with operations in Europe, the Middle East & Africa, Greater China, North America, Asia-Pacific, and Latin America.
Nokia closed 2016 delivering net sales of EUR 23.6 billion, and R&D expenditures equaling EUR 4.9 billion in 2016.
Organizational structure and reportable segments. January 14, 2016 was Nokia and Alcatel Lucent’s first day of combined operations.
After the acquisition of Alcatel Lucent, the company organized its networks-oriented businesses into four business groups: mobile networks, fixed networks, IP/optical networks, and applications & analytics (together the networks business); and kept the driver of future innovation and licensing, Nokia Technologies, as a separate fifth business group.
Nokia has three reportable segments: Ultra broadband networks comprising mobile networks and fixed networks; IP networks and applications comprising IP/optical networks and applications & analytics (all within our networks business); and Nokia Technologies.
Additionally, the results of other business activities that are not reportable segments, such as undersea cables business, Alcatel-Lucent Submarine Networks (ASN), and antenna systems business, radio frequency systems (RFS), are reported in aggregate. Both ASN and RFS are being managed as separate businesses.
Continuing operations net sales in 2016 were EUR 23,614 million, an increase of EUR 11,115 million, or 89 percent, compared to EUR 12,499 million in 2015. The increase in continuing operations net sales was primarily attributable to growth in Nokia’s networks business and group common and other, primarily related to the acquisition of Alcatel Lucent and, to a lesser extent, growth in Nokia Technologies.
Nokia’s Networks business net sales in 2016 were EUR 21,800 million, an increase of EUR 10,313 million, or 90 percent, compared to EUR 11,487 million in 2015. Ultra Broadband Networks net sales were EUR 15,771 million in 2016, an increase of EUR 5612 million, or 55 percent, compared to EUR 10,159 million in 2015. IP networks and Applications net sales were EUR 6029 million in 2016, an increase of EUR 4701 million compared to EUR 1328 million in 2015. The increase in Ultra Broadband Networks net sales comprises an increase in mobile networks net sales of EUR 3383 million and an increase in Fixed Networks net sales of EUR 2229 million. The increase in Mobile Networks net sales was primarily attributable to the acquisition of Alcatel Lucent, which drove higher net sales in both Radio Networks and Services. This was partially offset by revenue declines from several key customers in Asia-Pacific and North America due to previous build-outs and investments, as well as adverse market conditions in Latin America. The increase in Fixed Networks net sales was primarily attributable to the acquisition of Alcatel Lucent, and increases in Broadband Access, supported by the completion of a large project in Asia-Pacific.
The increase in IP Networks and Applications net sales comprised an increase in IP/Optical networks net sales of EUR 3987 million and an increase in Applications & Analytics net sales of EUR 714 million, primarily attributable to the Acquisition of Alcatel Lucent. The increase in IP/Optical Networks net sales was attributable to an increase in IP routing net sales of EUR 2425 million and an increase in Optical Networks net sales of EUR 1562 million. The increase in Applications & Analytics net sales was primarily attributable to the acquisition of Alcatel Lucent, and increases in services.
Group Common and Other net sales in 2016 were EUR 1145 million, an increase of EUR 1145 million, compared to approximately zero in 2015. The increase in Group Common and other net sales was primarily due to ASN and RFS net sales.
Nokia Technologies net sales in 2016 were EUR 1053 million, an increase of EUR 26 million, or 3 percent, compared to EUR 1027 million in 2015. The increase in Nokia Technologies net sales was primarily attributable to higher IPR licensing income and the inclusion of Withings’ net sales from June 2016 onwards resulting from the acquisition of Withings, partially offset by the absence of non-recurring adjustments to accrued net sales from existing and new agreements, and lower licensing income from certain existing licensees.
Nokia sold its HERE digital mapping and location services business to a German automotive industry consortium
comprised of AUDI AG, BMW Group and Daimler AG, that was completed on December 4, 2015. Nokia received net proceeds from the transaction of approximately EUR 2.55 billion at the closing of the transaction.
The company also sold substantially all of its Devices & Services business to Microsoft in a transaction that was completed on April 25, 2014. Microsoft was granted a 10-year nonexclusive license to the patents and patent applications. The announced purchase price of the transaction was EUR 5.44 billion, of which EUR 3.79 billion related to the purchase of substantially all of the devices & services business, and EUR 1.65 billion to the 10-year mutual patent license agreement and the option to extend this agreement into perpetuity. Of the devices & services-related assets, its former CTO organization and our patent portfolio remained within the Nokia Group, and are now part of the Nokia Technologies business group.
In India, Nokia is a supplier and service provider to the leading public and private operators, including Bharti Airtel, Vodafone, Reliance Jio, Idea, BSNL, MTNL, Aircel, and Uninor. Collectively, its networks for these operators carry over 280 million subscribers across over 230,000 sites, and these figures are growing every day. In addition, it is a key telecom infrastructure supplier to nonoperator segments, including large enterprises, utilities companies such as Tata Power and GAIL, Indian defense sector through L&T and BEL, and also a strategic telecommunication partner for GSM-Railways technology to Indian Railways, including Kolkata Metro Railways and DMRC (Delhi Metro Rail Corporation). The vendor has a global delivery center, a service delivery hub, and a global technology center in India.
India also houses a main R&D center.
Some major orders procured since April 2016.
Idea Cellular. In April 2016, the company bagged a 4G-network rollout contract for Kerala, Andhra Pradesh, and Haryana circles, along with network modernization ones across six circles for 2G and four circles for 3G. Under the agreement, Idea Cellular would deploy Nokia’s single RAN technology, which enables simultaneous 2G/3G/4G operations on one platform.
Bharti Airtel. In October 2016, the vendor secured a `1541 crore 4G-network deal in nine telecom service areas. Nokia would deploy its available 4G network technologies across nine circles in India including the regions of Gujarat, Madhya Pradesh, Bihar, Rest of Bengal, Odisha, Mumbai, Maharashtra, Kerala, and UP East.
In October 2016, the company was also awarded a big-ticket 4G deployment and expansion contract worth around Rs. 3350 crore. The new agreement with Nokia will see Airtel expand the deployment of 4G technology in three new circles – Gujarat, Bihar, and UP East – telecom circle, in addition to six circles – Mumbai, MP, West Bengal, Odisha, Punjab and Kerala circles – it already serves.
In November 2016, the company was awarded a `Rs. 402 crore pan-India contract to implement voice-over-LTE (VoLTE) calling technology.
Vodafone India. In January 2017, the vendor was awarded a 4G deployment and expansion contract worth `Rs. 3,650 crore for covering 10 of the country’s 22 telecom zones. Nokia is deploying and expanding 4G LTE network in Kolkata, Mumbai, Gujarat, Tamil Nadu/Chennai, Haryana, UP East, West Bengal, Punjab, Himachal Pradesh, and Jammu & Kashmir.
A multi-year managed services contract worth `Rs. 1420 crore was also awarded in January 2017, for covering several telecom circles. It was a contract renewal, and the scope had been expanded under the new terms. Vodafone India had given the managed services mandate to Nokia for 14 circles and a field operations contract for the remaining eight of the country’s 22 telecom zones.
BSNL. In March 2017, Nokia and BSNL partnered to accelerate the development of a 5G ecosystem in India. With this partnership, Nokia would help the transition of BSNL through Nokia’s 5G first end-to-end 5G solution, including its AirScale radio access portfolio and AirFrame data center platform to demonstrate 5G capabilities.
Idea Cellular. In September 2017, the vendor bagged a contract to deploy optical transport network solution, which would be implemented across fiber-constrained geographies on the telco’s network.
BSNL. In September 2017, BSNL issued advance purchase orders to Nokia supplying mobile network gear for its upcoming `Rs. 6000 crore countrywide mobile network expansion. The vendor would supply the network gear.
“2016 was a year of remarkable change for Nokia.
We started the year primarily as a mobile networks and patent licensing company. Today we are a fundamentally different company, with a complete portfolio that spans mobile, fixed, cable, routing, optical, standalone software, services, digital health, and VR, as well as licensing activities covering patents, brand, technology, and more.
During this transformation, we delivered solid financial performance, made significant progress integrating Alcatel Lucent, launched compelling innovations for our customers, moved forward with the execution of our strategy, and are on track to meet our commitment to reduce costs by EUR 1.2 billion in the year 2018.
Innovation. We made significant progress in our aspiration to lead in 5G as we began bringing to market innovation from nearly 10 years of research at Nokia Bell Labs. We are preparing the world for 5G with the industry’s best evolutionary path from 4G to 4.5G to 4.5G Pro to 4.9G and finally 5G. We set records for fiber-like speeds over copper with XG-Fast, delivering 8 gigabits per second in a test with Australia’s National Broadband Network. Our new optical chip sets enabled us to deliver a transmission speed of 1.2 terabits per second over optical fiber in Africa’s first field trial of optical communications technology. In New Zealand, we delivered 200 gigabits per second on a single wavelength over a single fiber. We introduced our intelligent management platform for all connected (IMPACT) to help our customers deploy new services for IoT applications. Our Nuage SDN platform gained traction helping businesses move to the cloud, and we continued our development of cloud service orchestration and network security. Nokia Bell Labs moved forward with its Future X projects, shaping the network of the future – massively distributed, cognitive, continuously adaptive, learning and optimizing.
Even if our business has changed massively, our culture remains uniquely Nokia. We are driven to win, focused on shareholder value, but always guided by our strong core values and deep commitment to ethics and integrity. We remain true to our vision to expand the human possibilities of the connected world, creating new and extraordinary experiences in people’s lives through technology that is grounded in real human needs. To that purpose we are dedicated, ready, and ideally placed to succeed.
These are truly exciting times at Nokia. We came a long way in 2016 and have plenty of opportunities in our future.”
President and CEO
The company is a leading integrated telecommunications equipment manufacturer in the world market and a provider of global communication and information solutions, with shares listed on the main board of the Shenzhen Stock Exchange and the main board of the Hong Kong Stock Exchange.
Operating results. For 2016, the company reported operating revenue of RMB 101.23 billion, representing growth of 1.0 percent as compared to the previous year which mainly reflected slight growth in operating revenue from carriers’ networks and consumer business. Operating profit surged 263.7 percent to RMB 1.17 billion, attributable mainly to relatively strong exchange gains thanks to flexible management of foreign exchange risk exposures, substantial decrease in net interest expense under an optimized structure for interest-bearing liabilities, and substantial growth in investment income generated through equity transactions. For 2016, the Group reported net loss attributable to holders of ordinary shares of the listed company of RMB 2.36 billion, which were primarily attributable to a provision for relating losses amounting to approximately USD 892 million in respect of post-balance sheet date events in accordance with accounting standards in relation to the agreements reached by the company with relevant U.S. authorities. Excluding the effect of the aforesaid provision for losses, the company would have reported net profit attributable to holders of ordinary shares of the listed company of RMB 3.83 billion, representing a year-on-year (Y-o-Y) increase of 19.2 percent. For 2016, the Group’s operating revenue from the domestic market and the international market amounted to RMB 58.55 billion and RMB 42.68 billion, respectively.
Business development. Investment in equipment by the global telecommunications industry remained stable in 2016. The growth in data flow was driving network capacity expansion and technological upgrade. Investments remained focused on 4G network, optical fiber, and broadband access although a certain degree of regional disparity existed. Meanwhile, multi application scenarios were driving faster progress in the formulation of 5G standards. The latest areas of interest in the industry included, among others, virtual reality/augment reality, artificial intelligence, 5G, IoT, cloudification and virtualization, which would present market opportunities for innovative development in the telecommunications industry. In the domestic market, the group sustained stable market shares in 2016 with stronger customer approval and satisfaction on the back of proactive efforts supporting the network construction requirements of domestic carriers. Comprehensive solutions built upon the core smart city strategy were provided to government and corporate clients. Innovations were introduced on an ongoing basis to improve user’s experience, as well as to enhance our brand recognition and influence. In the international market, the group achieved new breakthroughs in certain regions and started to reshape market distribution as it persisted in the strategy of focusing on populous nations and mainstream carriers. The group offered extensive services to government and corporate customers to meet their requirements for informatisation services and IT services. Moreover, the group has built a positive brand image and snatched new market shares with the launch of boutique smart terminal products designed to enhance user’s experience.
The group is dedicated to the design, development, production, distribution, and installation of a broad range of advanced ICT-related systems, equipment and terminals, including carriers’ networks, government and corporate business, and consumer business. There was no significant change to the principal businesses of the group during the year.
The carriers’ networks is focused on meeting requirements of carriers by providing wireless networks, wireline networks, core networks, telecommunication software systems and services, and other innovative technologies and product solutions.
The government and corporate business is focused on meeting requirements of government and corporate clients, providing top-level design and consultation services as well as integrated informatization solutions for the government and corporate informatization projects through the application of communications networks, internet of things, big data and cloud computing technologies, and related core ICT products.
The consumer business is focused on bringing experience in smart devices to customers while also catering to the requirements of industry and corporate clients through the development, production, and sales of products such as smart phones, mobile broadband, family terminals, innovative fusion terminals, wearable devices, as well as the provision of related software application and value-added services.
The industry in which the company operates. The company is a leading provider of integrated communication and information solutions in the world market. Through the provision of innovative technology and product solutions to telecommunications service providers and government and corporate clients in more than 160 countries and regions, the company enables communication services via multiple means, such as voice, data, multimedia, wireless broadband, and wireline broadband for users all over the world.
The group owns the most complete end-to-end product line and integrated solutions in the telecommunications industry. Through a complete range of wireless, wireline, cloud computing and IT, government and corporate business and consumer business products, we have the flexibility to fulfill differentiated requirements and demands for fast innovation on the part of different carriers and customers in the government and corporate sector around the world. Currently, the group is providing a full range of services to global mainstream carriers and customers in the government and corporate sector. In future, the group will continue to lead the way in the development of the global communication and information and address ever-changing challenges in the M-ICT era.
Technological innovation. In 2016, the group proposed a new dual approach of technological innovation and model innovation based on its perception of the future development of the ICT industry. Persistent efforts were made to foster technological capabilities and develop new products to seize opportunities in the ICT sector. The group announced the white paper for the M-ICT 2.0 strategy on the back of the M-ICT strategy announced in 2014 to further ascertain the five major strategic directions of VOICE going into the future: virtuality, openness, intelligence, cloudification, and internet of everything.
Operating Results of the Group
The domestic market. During the year, the Group’s operating revenue from the domestic market amounted to RMB 58.55 billion, accounting for 57.8 percent of the group’s overall operating revenue. The group sustained stable market shares with stronger customer approval and satisfaction on the back of proactive efforts supporting the network construction requirements of domestic carriers. Comprehensive solutions built upon the core smart city strategy were provided to government and corporate clients, with a special focus on the government, transportation, energy, finance, and education sectors, etc. Innovations were introduced on an ongoing basis to improve user’s experience in consumer business, as well as to enhance our brand image, recognition, reputation, and influence.
The international market. During the year, the group’s operating revenue from the international market amounted to RMB 42.68 billion, accounting for 42.2 percent of the group’s overall operating revenue. The group achieved new breakthroughs in certain regions and started to reshape market distribution as it persisted in the strategy of focusing on populous nations and mainstream carriers. Through the provision of creative product solutions, the group assisted global carriers to improve their network quality, provide innovative services to end-users, and eventually achieve effective transformation, at a time when data flow grew rapidly while 5G was not yet ready for commercial application.
The group offered extensive services to government and corporate customers to meet their requirements for informatization services and IT services. Moreover, the group has built a positive brand image and snatched new market shares with the launch of boutique smart terminal products designed to enhance user’s experience.
By Business Segment
During the year, the group’s operating revenue for carriers’ networks, government and corporate business, and consumer business amounted to RMB 58.88 billion, RMB 8.90 billion, and RMB 33.45 billion, respectively.
Analysis of Change in Revenue
The group reported RMB 101,233.2 million in operating revenue for 2016, increasing by 1.04 percent as compared with last year. Operating revenue generated from the domestic business amounted to RMB 58,550.1 million, increasing by 10.25 percent as compared with last year. Operating revenue generated from the international business decreased by 9.34 percent to RMB 42,683.1 million.
Analyzed by business segment, Y-o-Y growth in the group’s operating revenue reflected mainly slight Y-o-Y growth in operating revenue from carriers’ networks and consumer business. The 2.90 percent Y-o-Y increase in operating revenue from the Group’s carriers’ networks for 2016 reflected mainly the increase in operating revenue from 4G system products and optical transmission products in
the domestic and international markets. The 3.02 percent Y-o-Y increase in operating revenue from the group’s consumer business for 2016 mainly reflected the Y-o-Y increase in operating revenue from handset products and home terminals in the domestic markets.
ZTE Telecom India Pvt. Ltd.
ZTE India revenues in 2016 saw a growth of 796.54 percent over 2015, as against a global de-growth of 0.67 percent in the same period for the company.
India contributed 1.52 percent to the company’s global revenue in 2016, as against 0.17 percent in 2015 and 2.05 percent in 2014.
Some major orders procured since April 2016. In September 2017, the vendor was awarded with a contract for supplying mobile network gear for BSNL’s upcoming `6000 crore countrywide mobile network expansion. ZTE will supply the network gear.
In October 2017, ZTE kicked off 5G-related activities with Pre5G trials with Bharti Airtel, Vodafone, and Reliance Jio, as it increases it focus on advanced technologies like 5G to take grab India opportunity.
“We constantly update ourselves with the latest ideas and standards in sustainable development and seek in-depth understanding of the demands of our stakeholders, so as to ensure the incorporation of sustainable development as part of our corporate strategies and continuous improvements in our fulfilment of corporate social responsibility. The group is committed to creating and enhancing value for customers and partners and facilitating the transformation of the society based on smart operations as well as its own sustainable development through ongoing proprietary innovations, in a persistent drive for research, development and innovation as its core activity. We emphasize the breaking of internal barriers and the motivation of staff so that their talents and capabilities can be brought into full play in a workplace underpinned by equality and respect.
Environmental protection is practiced in every stage and segment of operation our operation and throughout the entire life cycle of our products. New products and services with higher commercial value and eco-efficiency are being launched on an ongoing basis in a scientifically rigorous manner. We help to improve the quality of life in general, as we enhance the ability of people of different places to build a digitalized society by applying our expertise and strengths in the communications sectors to bridge up digital gaps. The group’s efforts in sustainable development and corporate social responsibility have been widely recognized by governments, international bodies, and the media.
The group will see new opportunities for development in 2017 as the ICT industry is expected to sustain strong momentum, with artificial intelligence, virtual reality, 5G, cloudification, virtualization, and smart city taking turns to drive market developments, while network data flow will also sustain rapid growth. However, the group will also face challenges arising from the complex political and economic conditions in the world, as well as the expected decline in the overall revenue for global carriers, who will be actively seeking new profit and business models as the old practices are subject to the impact of new ventures and models. In 2017, the group will persist in active and prudent operations while attempting to explore new prospects with persistent research and development efforts complemented by stronger commitment to innovation and more stringent project management, as it seeks mutual growth with its customers, partners and other stakeholders and the creation of a positive ecosystem for the industry.”