Recently, a reporter from Nandu Bay Finance News learned that Nokia has announced that its technology department, Nokia Technologies, which is engaged in technology development and licensing business, has not yet completed negotiations for patent licensing renewal with customers and cannot recognize related revenue. Therefore, it is expected that the financial forecast goals in terms of net sales and comparable operating profit margin for the whole year of 2023 will not be achieved.
Previously, Nokia estimated that its net sales for the full year of 2023 would be between 23.2 billion and 24.6 billion euros, with a growth rate of -4% to 2% at a fixed exchange rate; The comparable operating profit margin is 11.5% -13.0%. Nokia stated in its announcement that it will release its fourth quarter and full year financial reports for 2023 on January 25th, while also stating that "there is expected to be a significant improvement in net sales in the fourth quarter compared to the third quarter," but "given recent decisions by some customers, the fourth quarter is more challenging than expected.".
Industry insiders have pointed out that the first instance judgment made by the Chongqing First Intermediate People's Court in December 2023 regarding OPPO and Nokia may be the "trigger" for Nokia's delayed release of financial forecasts
Patent revenue with a gross profit margin of up to 100%
According to Nokia's official website, it is expected that Nokia will not be able to achieve its financial goals for 2023 as discussions on patent license renewal are expected to continue until 2024.
In June 2023, when Nokia and Apple signed a 5G patent licensing agreement, the official stated that the company's patent portfolio was built on a research and development investment of over 140 billion euros (152.7 billion US dollars), consisting of approximately 20000 patents, including over 5500 patents necessary for 5G standards.
Therefore, under Nokia's almost monopolistic mobile phone patents and strict patent protection system, patent fees have become one of the profit pillars supporting Nokia's development. Nokia's financial report for the third quarter of 2023 showed a net sales revenue of 4.982 billion euros (equivalent to 38.92 billion yuan), a year-on-year decrease of 20%; Net profit of 133 million euros, a year-on-year decrease of 69%; The operating profit was 241 million euros, a decrease of 53% compared to the same period last year, and the adjusted operating profit was 424 million euros.
Among them, Nokia Technologies is responsible for managing Nokia's patent portfolio and monetizing Nokia's intellectual property (including patents, technology, and Nokia brand). In the first three quarters of 2023, Nokia's revenue from this business was 834 million euros, with a gross profit margin of 100% and an operating profit of 565 million euros, accounting for 37% of the overall operating profit.
Industry analysis suggests that with the further popularization of 5G technology in the future, Nokia's patent licensing revenue and profits may achieve greater breakthroughs.
Previously embroiled in multiple patent disputes
In 2011, Nokia obtained approximately 420 million euros in compensation from Apple through litigation; In 2014 and 2016, Nokia filed a patent lawsuit against Apple, and the patent litigation war between the two sides began thereafter; It was not until 2017 that Apple and Jiekuangri had a long-standing intellectual property dispute and reached a multi-year patent licensing agreement. Apple agreed to pay the patent fee in a lump sum, and the two sides transformed from adversaries to business partners.
In 2012, BlackBerry paid a patent fee to Nokia; In the same year, Nokia sued HTC for infringement of 45 of its patents. Subsequently, Nokia filed patent lawsuits against Samsung and even further targeted car companies such as Mercedes Benz, BMW, and Toyota. In 2021, Nokia filed hundreds of lawsuits against domestic mobile phone brands such as OPPO, vivo, and realme in multiple countries.
Some professionals point out that Nokia's aggressive approach not only requires charging 3G and 4G related patent licensing fees, but also intends to extend its rights to the high price of 5G patent fees through litigation. But Nokia's charging standards are hard to convince. For example, regarding the 5G patent licensing fee, according to Nokia's publicly announced fee standard in 2018, each phone using its patent should be paid a patent licensing fee of up to 3 euros (approximately RMB 22.95).
Compared to this, Huawei's patent fee is only $2.5 per unit (approximately 15 yuan in Chinese yuan).
After the Chinese court ruling, Nokia may find it difficult to "lie down and make a profit" again
It is worth noting that although Nokia stated in its announcement that "courts in various regions have also made favorable judgments in favor of Nokia", in fact, the first instance judgment made by the Chongqing First Intermediate People's Court in December 2023 may be the "trigger" for Nokia's delay in releasing financial report forecasts
It is reported that OPPO reached a patent cross licensing agreement with Nokia in 2018, involving 4G patents. Both parties will license each other's patents to use and negotiate 5G patent licensing matters with them before the expiration of the 4G contract. However, Nokia filed dozens of lawsuits against OPPO in multiple countries around the world before the expiration of the previous agreement and on the first day of its expiration.
The focus of the dispute between the two parties is mainly on patent fees, especially in the area of 5G. In 2021, when the 4G license agreement between OPPO and Nokia expired, Nokia filed lawsuits against OPPO in multiple countries around the world due to the failure to reach a consensus on new license conditions, including 5G standard essential patents. At the same time, OPPO also filed patent lawsuits against Nokia in China and Europe as a means of response.
According to a reporter from Nandu Bay Finance News, apart from Chongqing, OPPO and Nokia have related lawsuits in Germany, the United Kingdom, France, India, Indonesia, and other places. Over the past two years, both sides have their own victories and losses. Among them, courts in Germany, the United Kingdom, the Netherlands, Brazil, and India made favorable rulings in favor of Nokia, while in China, France, Indonesia and other places, more favorable rulings were made in favor of OPPO. Affected by litigation, there have been rumors of OPPO withdrawing from Germany and the UK. According to Canalys, in the first quarter of 2023, OPPO's market share in the Western European market accounted for 3%, a year-on-year decrease of 53%. In the latest third quarter, OPPO disappeared from the top five, a year-on-year decrease of 23%.
However, in July 2021, OPPO filed a lawsuit in Chongqing No.1 Middle School Court, requesting a Chinese court ruling to determine Nokia's global fair, reasonable, and non discriminatory (FRAND) licensing fee rate, including the 5G standard essential patent combination. In December 2023, the First Intermediate People's Court of Chongqing made a first instance judgment, which is also the first standard essential patent global licensing fee judgment in China.
The public judgment shows that the Chongqing Intermediate People's Court has recognized OPPO's claim, confirmed the global cumulative rate of 5G standards in the mobile phone industry to be 4.341% -5.273%, and further confirmed the single license fee for 5G multimode phones and 4G multimode phones, That is, "the license fee for a single 5G multi-mode mobile phone: Zone 1: US $1.151 per phone; Zone 2 (Chinese Mainland) and Zone 3 (countries and regions other than Zone 1 and Zone 2): US $0.707 per phone; while the license fee for a single 4G multi-mode mobile phone: Zone 1: US $0.777 per phone; Zone 2 (Chinese Mainland) and Zone 3 (countries and regions other than Zone 1 and Zone 2): US $0.477 per phone." Its figure is far lower than Nokia's publicly stated claim of a unified 5G patent licensing rate of 3 euros per unit.
Recently, the first instance court has made a judgment, and whether this case will proceed to the second instance process depends on whether Nokia chooses to appeal or comply with the licensing fee rate determined by the judgment to comply with the FRAND principle. But this ruling is likely to prevent Nokia from making any profit in patent licensing and give OPPO enough confidence to sit at the negotiating table again.
On January 4th, a reporter from Nandouwan Finance News interviewed OPPO about the progress of patent license renewal negotiations with Nokia and whether the content will be based on the judgment of the Chongqing court. However, as of the time of publication, OPPO has not responded to this.
According to Nokia's announcement, Nokia stated that it no longer expects these negotiations to end before the end of the year and expects them to be reached in 2024, thus benefiting Nokia's financial performance in 2024. Despite intense negotiations among relevant parties and favorable rulings from local courts in favor of Nokia, the company will prioritize protecting the value of its patent portfolio rather than achieving specific resolution deadlines.
For the fourth quarter and full year 2023 financial results, Nokia stated that as the financial period has not yet ended, Nokia is unable to provide preliminary financial results and will release the above data on January 25, 2024.