20-F: Nokia's 2024 Annual Report: Strategic Execution Amidst Market Volatility

Nokia's 2024 annual report highlights strategic execution amidst market volatility, achieving full-year guidance and pursuing growth opportunities.

Summary

• Nokia's 2024 annual report details the company's performance and strategic initiatives.
• The company achieved its full-year guidance despite challenging market conditions, with a comparable operating profit of EUR 2.6 billion.
• Free cash flow for the year was strong at EUR 2.0 billion, and the company ended the year with net cash and interest-bearing financial investments of EUR 4.9 billion.
• The Board is proposing an increased dividend of EUR 0.14 per share for the financial year 2024.
• Nokia gained market share in key areas and secured new customers, including a strategic deal with AT&T for fiber broadband deployment.
• The company divested its Submarine Networks business and acquired Infinera to strengthen its Network Infrastructure business.
• Nokia Technologies filed a record 3,000 patents and reached 7,000 patent families essential to 5G.
• The company is leading the telecom industry's transition to AI-RAN and cloud-native core networks.
• Nokia is investing up to an additional EUR 100 million in annual operating expenses in data center IP networking, with a view to driving incremental net sales of EUR 1 billion by 2028.
• A leadership transition was announced, with Justin Hotard becoming the next President and CEO of Nokia on April 1, 2025.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both achievements and challenges. The strategic initiatives and future outlook contribute to a moderately positive sentiment.

Positives

• Strong cash performance with EUR 2.0 billion in free cash flow.
• Increased dividend proposed to EUR 0.14 per share.
• Strategic deal with AT&T for fiber broadband deployment.
• Market share gains in key markets and new customer wins.
• Record-breaking patent filings by Nokia Technologies.
• Acquisition of Rapids technology and R&D unit.
• Divestment of Submarine Networks and acquisition of Infinera to strengthen Network Infrastructure.

Negatives

• Challenging market conditions led to a decline in full-year net sales.
• Mobile Networks net sales declined 21% year-on-year.
• Cloud and Network Services net sales decreased by 6% year-on-year.

Risks

• Inability to successfully implement strategic plans and grow the business.
• Economic and financial market conditions, including inflation and currency fluctuations.
• Intense competition and price erosion in the industry.
• Dependence on a limited number of large customers and multi-year agreements.
• Inability to adapt to changing business models and technological advances.
• Inefficiencies, incidents, malfunctions or disruptions of information technology systems and processes.
• Actual or perceived security or privacy breaches.
• Disruptions in manufacturing, service creation, delivery, logistics or supply chain.
• Inability to retain, develop, reskill and recruit appropriately skilled employees.
• Inability to protect intellectual property and monetize it effectively.
• Geopolitical tensions and regulatory changes affecting trade and operations.
• Complex tax laws and rules, and the ability to utilize tax attributes and deferred tax assets.
• Volatility of the trading price of Nokia shares and ADSs.

Future Outlook

Nokia expects a recovery in investment from customers in all business units for 2025 and is positioning itself for growth in data centers, private wireless, and industrial edge and defense.

Management Comments

• Pekka Lundmark stated that 2024 was a year of good strategic execution in a volatile market.
• Pekka Lundmark noted the strong cash performance and the Board's proposal to increase the dividend.
• Pekka Lundmark expressed pride in re-establishing Nokia's competitiveness and technology leadership.
• Pekka Lundmark mentioned excellent deal momentum, gaining share in key markets, and winning new customers.
• Pekka Lundmark highlighted strategic moves to accelerate progress in data centers, private wireless and industrial edge, and defense.
• Pekka Lundmark stated that his annual report will be his last as President and CEO of Nokia.

Industry Context

Nokia is navigating a challenging market environment with strategic acquisitions and divestments to focus on growth areas and improve profitability, aligning with industry trends towards cloudification, AI, and open network architectures.

Comparison to Industry Standards

• Nokia is a market leader in fixed, IP, and optical networks, competing with companies like Huawei, ZTE, Cisco, and Ciena.
• Nokia's Cloud and Network Services has a market-leading 850 private wireless customers and 123 5G Standalone Core customers, competing with various networking companies, infrastructure software suppliers, and hyperscalers.
• Nokia Technologies has licensing agreements with major smartphone vendors like Apple and Samsung, and is expanding into automotive, consumer electronics, and IoT, competing with other patent licensing programs.
• Nokia Bell Labs is a leading industrial research lab, comparable to other renowned research institutions, and is at the forefront of 6G research and development.

Management Changes

Corporate Governance

Legal Proceedings

• Nokia is defending against a number of labor claims in various Brazilian labor courts.
• Nokia is defending approximately 300 asbestos-related matters in the United States.
• Nokia commenced patent infringement proceedings against Amazon in several countries, and Amazon filed counterclaims.
• Nokia signed agreements with OPPO, vivo, HP, GoPro and Verifone, resolving pending patent litigations.

Related Party Transactions

• Nokia has related party transactions with its subsidiaries, associated companies, joint ventures and pension funds as well as the management and the Board of Directors.
• Nokia has borrowings of EUR 35 million from Nokias German pension fund, a separate legal entity.

Stakeholder Impact

• Shareholders will receive a proposed dividend of EUR 0.14 per share.
• Employees may be affected by the cost savings program and workforce reductions.
• Customers will benefit from Nokia's investments in new technologies and improved products and services.
• Suppliers are expected to adhere to Nokia's Third-party Code of Conduct and sustainability requirements.

Next Steps

• The Board of Directors proposes to the Annual General Meeting to be authorized to decide on the distribution of a dividend.
• Justin Hotard will become the next President and CEO of Nokia on April 1, 2025.
• Nokia will continue to execute its strategic pillars and invest in key growth areas.
• Nokia will continue to monitor and manage financial risks and maintain its investment grade credit ratings.

Key Dates