Nokia Oyj (NOKIA) Earnings Call Transcript

Hello, ladies and gentlemen, and welcome to our Cloud and Network Services Progress Update Event. I'm David Mulholland, Head of Nokia Investor Relations. And today on the line with me is Raghav Sahgal, our President of Cloud and Network Services. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. In terms of the structure for today's event, Raghav will provide a presentation on the progress we have been making in Cloud and Network Services, and then we will have a Q&A session. To briefly run through what we will discuss today will kick off with a short background around our Cloud and Network Services business, for those of you new to looking at it, along with this progress so far. Raghav will then spend some time discussing how we see the market evolving and the opportunities that creates for the business. We'll talk about some of our customers and focus on our business going forward before we open it up for some questions. It's a busy agenda, and we'll get going after a brief video. [Presentation]

And before I hand over to Raghav, for those of you who don't know him, he spent his career in software, helping customers transition to the cloud. He has a deep knowledge of Nokia's software capabilities through his prior roles. Running Nokia Software has been key in building what is today our private wireless business. With that, over to you, Raghav.

Good morning, and good afternoon. And if anybody is dialing in from the Far East, good evening. Thank you very much for the time that you're taking to invest into understanding our business. And first of all, I'd like to welcome those who attended the Nokia Oyj Capital Markets Day events in last March. And for those who don't, you're very welcome in this session as well. I've been 5 years with Nokia, so it's been quite a journey, and I thought I'll put things in perspective. But actually having spent over 35 years in the software industry, I will tell you that the pace of change and the level of innovation that is occurring in the high-tech space is actually quite unprecedented. While COVID had its challenges and drawbacks that we've seen around the world, we also know that it actually accelerated digitalization and a lot of innovation actually happened in this. And with this as a backdrop, let me give you a brief introduction on CNS. As you all -- some of you know that CNS was -- the formation of CNS actually happened in the latter part of 2020, and we began its operations on January 1, 2021. And essentially, it was -- we put together various assets from various parts of our business into CNS. And as such, this comprised Nokia's 2021 reset in terms of the phase of the journey that we were in. But with it, we also come with a lot of cloud software and services capabilities. It's a service mix of CSPs, enterprises, hyperscaler, customers and partners, helping them navigate essentially 3 major industry transitions. First of all, that's the introduction of and monetization of the 5G networks, which is where a lot of the spend is going. And we want to make sure that this leads to a heavy monetization. Cloudification is a communication platform as we move to the cloud native journey around software. And also the changing of a delivery model, which is really transitioning to a much more of an as-a-service delivery models as opposed to the on-premise deployments of software. And as these transitions actually take hold, their alignment is really creating a new digital ecosystem, which actually comprises of CSPs, hyperscalers, device manufacturers, application developers, consumers as well as enterprises, all coming together, much more as the edge evolves. And I will discuss a little bit about this digital ecosystem later, particularly as it relates to our growth priorities and where we believe, as Nokia, that we can actually disrupt the market and create value to actually accelerate our business. So first, a few words on the group structure in itself. So if you look at the 4 pillars of Nokia Software, core networks in this business group, we are actually providing market-leading 5G cloud software that is an engine for our customers' voice and data services. And this software provides maximum flexibility where we have an any cloud approach where you can run it on a public cloud, a hybrid or a private cloud. And our customers actually value, really, this openness and flexibility and intelligence and the automation that we build into their 5G networks. And this business represents about close to half of the CNS revenues at this point in time. Business applications, which is the next unit, is really one that creates software that really optimizes and automates and secures to help monetize the customer network into the consumers and enterprises. And this portfolio includes a broad range portfolio, which comes only from analytics, security and monetization. We also run this portfolio on an any cloud environment. And as a number -- and this is an area where we are launching our SaaS use cases, which are already becoming available. The full go-forward portfolio will be offered via SaaS over the next few years. And this unit represents about 1/5 of our CNS revenues. Next up is the Cloud and Cognitive Services. It's a business of managing a complexity of our customers in actually running their networks and providing operational intelligence and automation in a managed services environment. You need to provide expertise such as manage secure capabilities, manage performance services. And it also provides solutions with -- offer IoT connectivity as a service, which allows you to offer -- and secured data in a marketplace, which is because we have a lot of data that the network in itself. And we're using technologies such as blockchain. And this unit also represents about 1/5 of our CNS revenues. And finally, the Enterprise Solutions, and you probably know this Enterprise Solutions unit for providing the bulk of our enterprise private wireless software in a simple as-a-service offering. We've actually extended this portfolio with a mission-critical Industrial Edge platform as the edge developed, and to be able to embrace a family of industrial devices and the ecosystem that will come together. With that portfolio, the unit is actually driving -- we are really in the forefront of the industrial automation and the Industry 4.0 journey of digitizing industries. And this is where we are working with an ecosystem of partners which create optimized bundles that include hardware and devices and software for enterprises to really meet the operating technology demands that they are faced with. And this unit currently young but growing at a very fast pace is a unit that represents about 10% of the CNS revenues and is growing well. And underpinning all of this is really what is we're calling the SaaS delivery model and that all of these businesses will be delivered on a SaaS basis are giving our customers greater flexibility of creating value and with a faster time to value. And we believe we are industry-leading in the telco space when it comes to SaaS, and I'll talk a little bit more about this as we go forward. But let's get into a little bit of the business performance of how we've performed since we last spoke to you. As you can see that we are progressing against many of the goals that we had set and the numbers underpinning that performance. Since the Capital Markets Day in 2021, we believe we've gained share in the growth areas we identified at that time. In fact, we estimate that we grew about 5 percentage points faster than the market in the growth segments. And so this is a good starting point for our performance. Also, as indicated earlier, according to the industry analysts, we've been placed highly in areas where we chose to operate, compete -- and also compete, often taking the #1 position. In fact, in private wireless, it's fair to say that we actually hold the pole position based on consensus of various industry analyst reports. We've also moved forward aggressively with SaaS, which was met very positively by the marketplace and our customers and industry commentators. And we have products and services available in the market, and we've also made some of our first signings towards the end of 2021. I'll devote more time to private wireless monetization SaaS later in the presentation, which is where we believe there will be [ extra ] related value creations. We worked hard over the last 12 to almost 17 months now in rebalancing our R&D and business to make sure that we target growth market opportunities, and this is actually reflected in the shift in our business. And as we look at our comparable operating margin that will show progress as we improved our fixed cost position through the course of last year. If we get on to the next slide, we'll see the kind of the performance. And I think you probably had a chance to view our Q4 results and end of year Q1 results as well, I mean end of 2022 Q1 results. And what we've captured here is that net sales were up year-on-year, and we delivered comparable operating margin at the upper end of the 3% to 6% guidance we had provided in the Capital Markets Day in March 2021. We've seen good growth in a number of 5G core customers in both CSPs and enterprise space. And we've also delivered high double-digit growth in our private wireless customers, totally increasing the number by almost 164 at the end of last year and getting our total greater than almost 500. And as an example, where we've intended to lead and disrupt with DISH, we actually delivered the first 5G standalone core on a public cloud, and we also made our first SaaS signing in 2021, and more on that later. If you look at the landscape, and I'd like to talk a little bit about what's happening in the market that we are operating in, it is changing dramatically. We are all aware that on the onset of 5G is upon us. Industry 4.0 is also gaining traction. Hyperscalers are really increasing -- coming on the scene, meaning that cloud native deployments is going to become -- is starting to become pretty much business as usual as we go forward. Application developers are becoming increasingly essential to the new types of 5G services mix. And the CSPs are really seeking to monetize this 5G investment in participating in this ecosystem, which is what we are calling this new digital ecosystem that is being created. And with our portfolio and capabilities, we believe that we will be at a very heart of making the digital ecosystem flourish and creating value for Nokia, the ecosystem partners and customers and consumers and enterprises. But if I wanted to just get on to the next slide and give you a little bit of a view as to how this ecosystem actually looks like and how do we create value in this ecosystem. Within it, we envision an interconnected hub actually, where an ecosystem players converge to combine their expertise and capabilities to actually deliver an end solution. And actually, in order to create new services such that they will be relevant in Industry 4.0, the metaverse and actually web 3.0. And these are all replicated at the Edge cloud level. Leveraging analyst information and our own internal information, we conclude that about 82% of the value of 5G will come from the service creation in the new digital ecosystem. This -- that value actually is created when new services are produced and actually are composed of other set of services, and let me explain that a little bit. When the services are -- when there are different types of services that are stitched together, they form different types of use cases, and we call them what is known as in the industry service chains. And these service chains actually deliver value to the end user. With 5G, the capabilities of networks becomes actually another services that we can make available in the service and into the ecosystem to actually enhance value to the end user. So our goal is really to make sure that these service chains of applications that are being developed, we're able to render the new 5G capabilities and participate in that service chain in itself. And service chains will be required to make Industry 4.0, Web 2.0 and 3.0 and the mission-critical metaverse a real reality, but they need to be easy, easy to find, be able to create and consume. And this is where the digital marketplaces and the application developer ecosystem and enablement will actually accelerate monetization capabilities that are required. To make 5G easy to find, create and consume, it needs to be dramatically changed into something that we're calling software code that is available in the digital marketplace where application developers can find it and use it in a very easy manner. And for CNS, this is a notion that we are calling this Network-as-Code. Network-as-Code is a fundamental building block for 5G monetization. And I'll talk about this in a little bit in a few slides. And this is the generational shift and opportunity. For CSPs, we believe we've identified almost 10 to 15 additional monetization opportunities that will be available by enabling new enterprise services really at the edge. For application developers, Network-as-Code will become a platinum card access to the network on which to innovate with new consumer experiences and enterprise services on offer. And enterprise and consumers will also gain benefit of the new services and experience. So if we now turn to where CNS actually plays in this ecosystem, this ecosystem that we have provided what we call is the digital ecosystem, we are ourselves investing to create value where we can identify each of the business units rolled in this system. Core networks sits at the heart of the digital ecosystem, making 5G core capabilities available. And in an open, flexible and an intelligent core is vital to creating value in our northbound as we deliver network-as-a-code to the digital ecosystem. If you look at our role in the business application side, which sits at the heart of the digital ecosystem, connecting the infrastructure into the digital fabric, it provides vital services to make sure that we secure the network, automate operations and deliver services such as network slicing, et cetera, to make those capabilities available. And we also bring in things like convert charging, AI and analytics that actually help CSPs improve network performance and crucially monetize that investment. If you look at Cloud and Cognitive Services, this brings high levels of human expertise and technical capability to ensure that the network is secure and optimally operating to ensure that we deliver those capabilities in a very efficient manner. And finally, if you look at the Enterprise Solutions unit, that not only provide software for campus private wireless, but to deliver high-speed, secure, low-latency connectivity at the edge but also with the launch of what we've called is the mission-critical Industrial Edge, it now allows you, which is a platform to participate fully across the digital ecosystem with not only connectivity, but being able to deliver different types of applications at the edge in addition to the connectivity, bringing the ecosystem together. So our combination of applications, cloud connectivity and edge computing will be fundamental to driving Web 3.0 adoption at the edge, and this edge were dependent technologies like AR, MR, robotics and metaverse come on stream. So as I hope you've noted the bulk of this CNS business opportunity resides in the part of the market, which represents the 82% of the value that 5G will create. And now what I'll do is really try to revisit a little bit of what we discussed in the CMD last year with respect to the growth market segments that we identified. And in doing so, I'm going to try to emphasize the area where we are seeing opportunities for accelerated value creation in the emerging digital ecosystem. So if you look at the 6 areas where we are focused on, as a reminder, these are really the 4G, 5G core, digital operations, security, analytics and AI, private wireless and industrial automation and finally, monetization. And these are what we expect to grow faster than the market. While the overall addressable market at a healthy 5% CAGR from 2021 to 2022, that we're seeing these 6 growth segments grow at about 11% CAGR over the same period. Our portfolio rebalancing and go-to-market has had us firmly fixed on this particular addressable market. And we obviously underpin this, as I said earlier, with our SaaS model. SaaS in itself is not a distinct growth market segment but a highly transformative part of our go-to-market and one that we believe will differentiate Nokia for both CSPs and enterprise by giving them a lot more agility and a better way of delivering software, obviously, driving improvements in our overall financial performance. If you look at -- as we look at these 6 growth areas and SaaS in relation to the digital ecosystem, I will group it into 2 sections. The first section is really focused on growth segments that we continue to evolve in a predictable way. And the other 3 areas are much more disruptive which open up significant new opportunities for us. So firstly, as 5G is rolled out with supporting operations and security software. We expect the evolution of our business to address the market across 4G, 5G core digital operations, security analytics and AI. And as a reminder, these parts of the marketplace are mainly addressed by our core networks and our business application units. Right now, these growth market segments build on our existing capabilities, addressing the needs and expectations of our CSP customers. And in turn, their customers, too. But we did not actually quite frankly stop here. We see 3 areas of disruption where we can actually deliver accelerated value creation. And that builds on our technology leadership and marketplace. Let me begin you by campus wireless and industrial automation. Operating at the edge, it represents really, in my view, a micro-chasm of the digital ecosystem with a service chain comprising of spectrum, Edge cloud, industrial devices, Nokia and third-party applications all coming together to build a new industry 4.0 and the soon Web 3.0 and mission-critical metaverse solutions that will come in the near future. And let me provide a further update on our progress in this particular area. Looking back in November of 2019, we really kicked off this business paving the way for Industry 4.0. At the time, ABI Research forecast that private wireless market opportunity to be well over $16 billion by 2025. Back then, actually, we announced over 120 private wireless customers. The total right now is more than 450, of which actually 90 include 5G. We've also announced partnerships with web scalers such as Google as well as with key CSP verticals, partners and SIs. We put our stake in the ground and have moved forward ever since with a market-making continuance because it is still a nascent market, which is developing and we're helping develop that. For example, in the first half of 2022, we announced partnerships with Microsoft, with Alibaba Cloud, Atos, Comcast and Kyndryl as we expand our SI relationships and solution development ecosystem. We also announced major additions to our portfolio. Following on from the platform, which is the MX Industrial Edge, we now also integrate industrial WiFi to meet the wide range of customer connectivity needs, all in one system. We've also delivered, working with Bell Labs innovation, on things like MX Boost to make sure that we can give the highest possible levels of network performance using different access technologies. In the same quarter, we also announced deals with such as Omron, and we're also partnering with Virgin Media O2 Business or British Sugar. And we continue to maintain market leadership by a number of these customers that we continue to serve. We've made and will continue to make major investments in our Enterprise Solutions unit. We'll continue to ramp up R&D and operations and sales resources. And most importantly, we'll also continue to extend our partner ecosystem because this whole enterprise world is about bringing a partner ecosystem together. Moving forward, we eye the mission-critical metaverse as holding great potential for our private wireless and Industrial Edge solutions, again, to connect to the digital ecosystem. To give you an example here, Tactile, which is profiled here, is a good example of a digital ecosystem actually in action. Tactile delivers real-time content when and where it is needed with an augmented reality work instruction tool for a desk-less worker. Tactile also provides critical work instructions on a tablet, a mobile devices and heads-up displays and information, which is presented very clearly, enabling actually workers to complete very complex tasks in a very efficient and safer manner than ever before. And combining Tactile's manifest software on Nokia's MX Industrial Edge provides actually what is the low latency and Edge compute requirements to provide a highly responsive experience. So this is a good view as to how we continue to progress in the private wireless base. If we now look at monetization, and this is a very interesting change that you will see over the coming years, that actually the whole notion of making sure that we enable the digital developer is going to be very, very critical to drive disruptive change. Monetization is going to be crucial in an ecosystem in order to make sure that the CSPs are being able to drive maximum value of the deep investments they're making into their networks, be that in slicing, network extraction for specific applications, convert charging or simply enabling developers to quickly and very, very easily introduce new services for consumers and enterprises. Actually, traditional charging platforms have been adding new types of capabilities over time to position for 5G monetization. For example, we've had what is called a no code charging configurator that actually requires very little knowledge how to set up new charging rules in the new types of models of how you're going to charge in this ecosystem. We've also enabled cloud charging on the public cloud. And these are the types of capabilities that are going to be very necessary to monetize 5G. But however, there is even a more transformation monetization model that is required. And this is where I refer to as Network-as-Code, which we believe can be a game-changing shift in monetizing 5G opportunities as we go forward. And as the Network-as-Code evolves, so does the ability of the digital ecosystem to integrate new types of network capabilities that 5G will offer very easily into the ecosystem. And this is what we will enable what we call is the application economy of the digital developers to create network aware and adaptive service chains. With Network-as-Code monetization, we can actually very simply expose connectivity capabilities for ecosystem partners to enable creation of new value chains to deliver new revenue-generating use cases. For example, with surveillance drones, as an example, a service chain is created. The network, the cloud, the devices and the Nokia, which are -- some of it provided by Nokia or third-party applications, deliver an enhanced secure high-definition video to protect actually critical facilities and infrastructure. And in doing so, a variety of new monetization opportunities are created for not only the network provider, but it actually creates value for even the ecosystem partners that go into it. And we are beginning to see Network-as-Code is helping actually new types of services that are developed, such as network-based language translation, and enhanced video analytics capabilities. Looking at the next part, which is really on the SaaS side of things, as I said earlier, Software-as-a-Service really represents an entirely new way of service delivery channel, which actually manages help manage CapEx and delivery and deployment benefits to our customers, giving them a lot, lot more agility to be able to deploy these new types of capabilities. And moving to telecom, SaaS can actually cut customer IT costs by well over 25% over 5 years as opposed to the existing software model delivery model. And this is provided by actually Analysys Mason research. This reduction actually compares SaaS with the cost of a traditional on-premise software delivery and consumption, which entails CSPs having to buy and manage their own infrastructure as opposed to being able to deliver it and consume it as a service. So SaaS will be a key area of industry leadership we're actually CNS. But we have actually now 3 SaaS signings with our portfolio of Nokia data marketplace, which actually includes Equideum Health and our latest SaaS launches, which include AVA for Energy and also for home device management. Our immediate focus has been to launch these new services in the areas of analytics, security and in the data marketplace. And for 2022 to '23, we expect to drive new services and new use cases within these services families into the market while also establishing teams and tools to operate our SaaS business really at scale. We will also continue to develop operational automation to grow this business, adding multiple tens of tenants over a time frame. And by 2024 and beyond, we should expect rapid growth as we see developing customer references and continue to improve on our own operational automation. And we anticipate that this will start to host hundreds of tenants over the next few years over this infrastructure. And we will also move beyond our initial services into much more a more comprehensive high-value solution suites, including what we call as digital operation, monetization and 5G core networking assets because we believe that people will not just buy product, but they will buy use cases going forward. And that's why we will -- we are shifting a notion to being able to deliver use cases that deliver clear outcomes to the businesses that are consuming it. So on a long-term basis, if you look at how these stack up over a longer term in terms of value creation, these 3 disruption value creation levers of campus Edge, Network-as-Code monetization, and SaaS presents significant opportunity for CNS. And what I'd like to provide is a little bit of a view as to how they will transform CNS in the longer term. In campus, we believe that for every dollar we earn, we will earn yet dollar of revenue from our mission critical Edge platform and third-party applications, the ecosystem that we will bring together at the edge over the next several years. Likewise, if you look at 5G monetization, which is driven by Network-as-Code and the developer application ecosystem starts to scale, we will see about almost 25% of our CNS revenue stemming from these disruptive business models. And finally, if you look at SaaS and cloud ARR in the world of SaaS and cloud, annual recurring revenue is a key measure. We see that ARR in the enterprise will obviously drive over half of our revenue as we scale up in those services in the coming years. And so this is where we are really excited and focused on execution to make sure that our strategy to capture these 3 new disruptive opportunities are highly focused, and we are really building ring-fence teams to make sure that they are very highly focused and driven on these initiatives to go forward. But all of this is great unless we don't talk about customers. So it's important that I give you a little bit of a view as to how we are looking at the customers. But first, I'd like to share with you a short video before we get into the definition of some of what we're doing with our customers. [Presentation]

Okay. So I hope you got a flavor of some -- what some of our customers are saying. But if you look at this next kind of chart, it gives you kind of a span of our customers around CSP's asset-intensive industries that are using our solutions in manufacturing, in health care, in education, in sport venues and even in 5G microbreweries. So that's an interesting one. Since CMD in 2021, we've actually made more than 20 CSP core networks and business application press announcements, and actually almost more than 40 enterprise press announcements. While this is just the tip of the iceberg of our signings, this volume kind of demonstrates our momentum and growth. And specifically in the 5G SA core market, we've actually got over 60 CSP customers around the world now, including 30 CSPs just in Europe. In addition to that, 25 of the top 40 CSPs globally, by revenue, rely on Nokia core network products and themselves. And actually, with almost more than 250 core networks under execution, this gives us immense industry experience and expertise to continue our growth as we go forward. And this also gives us a significant opportunities actually as Tier 2 operators increase their investments in 5G. And it may be counterintuitive, but Nokia has been in the enterprise business for decades, but never before at the size and scale that it is actually currently right now. And central really to our strategy for enterprise is our campus private wireless and industrial automation portfolio that I talked about, which is really enabling our customers down the digitalization journey. And as we all know, through COVID times, it's just accelerated. And it is safe in the sense and the knowledge that they do so. They have an experienced partner that actually works with them and brings that knowledge to bear and not only through our market-leading portfolio, but also the expertise and the insights that we have actually gained through this process. As our customers view this Industry 4.0 and the industrial and enterprise metaverses, we are calling it, there's deep acknowledgment that these advances will create a demand of its -- totally new types of capabilities, one that needs to be integrated within the digital ecosystem and actually starts to operate closer and closer to the edge. And we're seeing more and more organizations interested in transformational capabilities around campus private wireless and industrial automation. And it's very clear that it's understood that they actually pull the key to enhance productivity, efficiency and safety as we go forward. And they're already starting to transform in how these industries operate. And we believe we're still actually pretty much scraping the surface of the potential market opportunity that exists around. And I'd just like to take a couple of examples of 2 customers on this next slide. And this is a great example of the first one, which is DISH, which I talked about a little bit earlier is a great example of a landmark disruptive deal placing DISH at the forefront of the industry. It is actually the first 5G standalone network on a public cloud with AWS. And it will give DISH the automation required to meet evolving customer needs, allowing it to support new enterprise and consumer 5G use cases very, very quickly, in a secure manner and across multiple cloud stack end user premises themselves. This also gives us the capability to be very responsive and flexible and efficient to be able to create new innovative types of services for their customers and leveraging the automation for essentially ongoing operations that actually unlock capabilities such as network slicing and other elements that [indiscernible]. KDDI, a very key customer of ours in Japan, where is increasingly looking at how they can reduce their energy costs, but also to actually manage carbon emissions. And this allows them to help not only reduce overall energy bills by using our Nokia AVA Energy Efficiency solution, and they've actually been able to get up to 20% better usage in terms of energy consumption. And this is a good sustainable patterns of energy usage that we can deliver. It also provides a very coherent energy control that adapts actually consumption to traffic levels, while maintaining and ensuring a premium user experience to their customers, and we are now delivering this solution on a SaaS basis. And this is where we actually bring to bear a telecom expertise, artificial intelligence, cloud-based delivery that will actually characterize digital services operations going forward. So in closing and trying to move into Q&A, I'll provide some closing thoughts, and thank you for listening to the evolution of our strategy. And the execution that you see is really the strategy that we have represented here. But a few closing words. Firstly, I think we have successfully navigated the creation, integration and a first year of operations within CNS. We've been able to manage to combine and establishing a cohesive business group with portfolio realignment, sales growth and improve profitability, all reflected in our numbers. And this gives us a good foundation to going forward into 2022 and beyond. We've consistently -- secondly, we've consistently talked about technology leadership, which is the underpinning of our strategy, which will provide the [ key ] differentiation. And this is also starting to pay dividends as CNS is starting to be recognized as a marketplace leader in many areas where we have chosen to actually operate. But this doesn't stop here. With our introduction of SaaS, we're also leading the telecoms industry as a whole in an area where it has been previously been slow to innovate. But based on the marketplace response, we believe our timing is absolutely spot on. Our strategy evolves around the emerging digital ecosystem, which I've talked about in terms of where the value is the 82%. And this will actually enable the delivery of 5G services. And with the technology portfolio that we have, the partnerships that we are building, the customer insights that we have, we feel we are very, very strongly positioned in this space. And we are absolutely committed to creating a new value, leveraging the network as a code for application developers to deliver innovative experiences and services for consumers and enterprises and CSPs endeavor to monetize this 5G investment going forward. We have made markets, and we will continue to do so, and we have to bring thought leadership and industry leadership, and that's when you start to make markets, particularly around the campus private wireless and in monetization and the SaaS, leveraging SaaS capabilities and how we can help our customers transform both from buying and selling services. We feel that we are in a leadership position in these spaces, and we need -- we intend to continue to accelerate and extend that leadership. And finally, when we spoke about last year, we essentially talked about reset. I think we can all be confident that the reset is well and truly over. And we are firmly fixed on the accelerate part of our strategy. In fact, I believe we can go even further. Not only have we identified how we are positioning for growth in the growth market segments, but we've also taken steps further to shape those segments as we target accelerated value creation for our customers, partners and of course, Nokia CNS. And with that, I thank you very much for listening for the last 40 minutes or so. And I think we'll turn it back to you, David, to take on question and answers.

I'll move to the Q&A session. And as we've mentioned before, with these events, they're very much focused on our products, technology and strategy rather than a financial update. So we would ask that you would focus your questions today on our Cloud and Network Services business. [Operator Instructions] We're also delighted to have on the line with us Karl Bream, who is the VP of Strategy for Cloud and Network Services, who may also appear to assist with some of the questions. But with that, Rocco, could you please give the Q&A session instructions for those that have dialed in?

[Operator Instructions] I will now hand the call back to Mr. David Mulholland.

Thank you, Rocco. We'll take our first question from Aleksander Peterc from Societe Generale.

My first question would be on the mix of your business. At the previous update of the CMD, you said that your emerging business defined as 5G core analytics, private wireless information and managed security was 37% of CNS revenue. And the remainder of 63% was legacy. You intended to reverse the shift by 2023 to the opposite situation. So having 63% in emerging and 37% in legacy. Are we now halfway? How does this mix evolve, if you could tell us that? And the second question will be more on how we should so think about the shape of margins going forward? I'm not asking to quantify anything precisely, but I'm just wondering if your shift to the full SaaS, will entail some pain on margins in the initial phase? That's what sometimes happens in this transition.

Sure. Thank you, Aleksander. I appreciate the question. As you know that in our Q4 results when Pekka talked about our performance, he reflected some of this information in that. And just to reiterate some of that, in 2021, our emerging business actually grew 13%, while the existing or the existing business actually declined by 8%, which meant that the portion of our business that is classified as growth expanded actually from the 38% in 2020 to about 43%. So we've made almost a 5% to 6% points improvement from where we were by emerging -- was between 37% and 38% to getting to about 43%. So I think that trend will continue. That's where the growth that we continue to see. And so I would say that we're making good progress. And as always, this is a journey, but we are very happy with where -- what we've achieved thus far in terms of the increase in the shift. With respect to the operating margins on a CNS point of view, we have not given guidance on individual [ BG ] margin targets for 2023. Rather, we have expressed the goal of actually reaching at least 14% for the business group at a group level in the long term. That said, the guidance for 2022 for CNS was more in the 4 to 7 percentage points. It's important to note that we've decided to make additional investments in private wireless considering that we see that growth opportunity. And this is why we want to have that flexibility of being able to provide capital allocation against what we see our emerging trends and have the flexibility to shift that. And beyond 2022, we clearly have an ambition to expand our margins, which will be helped by portfolio rebalancing. It will be helped by volume and mix. It will be helped by things like SaaS and all these other things that we're doing and the new value creation areas that we're looking at in terms of how that will progress over the coming years.

Thank you, Alex. We'll take our next question from Andrew Gardiner from Citi.

I suppose my question is related to what Alex was asking and sort of how you closed out your comments, Raghav. Given your business has been newly formed at the beginning of last year, and we clearly had this shift in mind sort of more towards the growth emerging areas and away from legacy. I mean, it felt at times last year that certain areas of that sort of legacy business did have some issues in terms of declines. You mentioned it, I think, in particular, Cloud and Cognitive Services, a number of quarters was down. Do you feel like -- and that sort of choppiness in a way can make it difficult for us to model quarter-to-quarter, even though sort of the new stuff is clearly going to grow faster? Do you feel like the worst is behind you for, let's say, the legacy areas, sort of the nongrowth areas? Have you got to a level where it's going to be a bit more stable? Or is that -- is there going to be further pressure on that front while the new stuff grows?

Thank you very much. A very good question. And to be very specific on the Cloud and Cognitive Services business unit, which is really our managed services business. Our shift has always been to focus on more intelligent and automation capabilities. And this is what will help improve margins on a longer time. We have actually exited parts of the portfolio that were first-generation people only kind of approaches to our managed services business. So we continue to use a very, very disciplined approach in the areas where we needed to provide more focus as we were rebalancing the portfolio. And I think we've made excellent progress on that. And in addition to that, we continue to grow some of our businesses, even in CCS, things like the data monetization piece, even in WING with -- sign new customers like Telecom Egypt in end of last year. And we're adding new connections from our existing customers. So we're using a very, very thoughtful approach to make sure that we build more and more on the higher-value services and where we bring in intelligence and automation because you got to realize, as you go to the 5G world and you go through where the network starts to disaggregate and how to deliver that efficiency is all going to come through automation and trying to drive to cloud. So we're making fundamental changes in bringing new technology capabilities to make sure that areas which were a little bit more problematic in the past. We made the right approaches in terms of fixing those going forward. It's a journey, as always, but we believe we've taken the right actions to make sure that there is a continuous improvement in these particular areas. And we're introducing a lot of other types of capabilities as well in terms of we call this continuous integration, continuous delivery capabilities to deliver software in a better way and so on and so forth. But some parts of the portfolio like 3G, legacy, OSS, these are being refueled into new portfolio evolution. So those will naturally harvest [indiscernible] as 3G becomes less pervasive and 4G and 5G upticks continue. So that naturally happens. And we have a good plan as to how to make sure that we support that but also transition to the new part of the portfolio. So I think we are in a good shape, and we continue that. But there's always more work to be done, but we feel very good where we are. And I don't think it will put that pressure on us going forward.

Did you have a brief follow-up?

No, that's clear.

Sure. We'll take our next question from Simon Leopold from Raymond James.