Nokia Vs. Ericsson: A Detailed Comparison

Nokia (NYSE:NOK)  and Ericsson (NASDAQ:ERIC) are among the largest providers of wireless networking equipment globally. In this analysis, we compare the financial performance of the two companies, looking at their revenues, costs, and margins and valuation.

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Comparing Revenues

1.1 Revenues: Nokia’s Revenues stood at $27 billion in 2018, compared to $24 billion for Ericsson

• Nokia’s revenues have grown from $15.7 billion in 2014 to $26.7 billion in 2018 driven by its 2016 acquisition of Alcatel-Lucent, although revenues have remained sluggish since then, on account of saturation in the radio access network (RAN) market.
• Ericsson has seen revenues decline from about $29 billion in 2015 to about $24 billion in 2018, on account of lower 4G deployments and also due to a weaker Swedish krona.

1.2 Revenue Growth: Both Companies Have Been Seeing Sluggish Growth In Recent Years

• While Nokia’s revenue growth accelerated over 2016, both companies have largely been seeing sluggish to declining growth in recent years due to a weak RAN market.

1.3 Geographic Revenue Mix: Both Companies Derive A Bulk Of Revenues From North America & Europe

• Both companies have a relatively similar revenue mix.
• Europe and Latin America account for 35% of Nokia’s 2018 revenues and 29% of Ericsson’s.
• North America accounts for 29% of Nokia’s revenues and 28% of Ericsson’s.

2. Margins And Costs

2.1 Both Companies Have Been Posting Net Losses Over The Last 2 Years

• Nokia’s net losses declined from $1.6 billion in 2017 to about $0.6 billion in 2018.
• In the same period, Ericsson’s losses declined from 3.8 billion to $0.7 billion

2.2 Nokia’s Gross Margins Have Been Consistently Higher Than Ericsson’s

• Nokia’s gross margins are higher than Ericsson’s, on account of its technology licensing business, which licenses the company’s intellectual property.
• Ericsson’s margins have declined from 36% to 32% between 2014 and 2018.
• Nokia’s margins have declined from 42% to 37% in the same period.

2.3 Nokia’s R&D Spending As % Revenues Is Slightly Higher Than Ericsson’s

• Nokia spent about $5.5 billion on R&D in 2018, compared to $4.5 billion for Ericsson. As a percentage of revenues, the metric stood at 20.5% and 18.5% respectively.
• Nokia’s R&D spending as % revenue has grown from 16% in 2014 to 20.5% in 2018.
• Ericsson’s spending has expanded from around 16% to 18.5% in the same period.

2.4 Nokia’s SG&A Expenses As % Revenue Is Also Slightly Higher Than Ericsson’s

• Nokia’s SG&A expenses stood at about $4 billion in 2018, compared to around $3 billion for Ericsson.
• As a % of revenues, Nokia’s SG&A increased from 12.4% to 15.3%.
• The metric for Ericsson rose from 12% to 13%.

Valuation

• Nokia’s current market cap is slightly ahead of Ericsson’s at about $29 billion, versus Ericsson’s $27 billion.
• However, both companies are valued similarly on a relative basis with a P/S of about 1.1x