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. 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 factor 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, we'll kick off with a short backgrounder on our Cloud and Network Services business for those of you new to looking at it, along with its 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.
Your network isn't just a network, it's a playground of possibilities, and it's time to open it up. Welcome in new partners and customers, and open up new revenue streams. Use your network as code. Repackage it, repurpose it, shape the future with it. We'll help you open your network securely so you can open your business for greater flexibility and new possibilities, for intelligent automation with enhanced operations, for smarter security, and for a more profitable future. Give your customers the services they need to do the things they want. You have the network and the power, and this is your time. Reinvent your business and take your place in the hyper-connected future.
Before I hand over to Raghav, for those of you who don't know him, he has 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, and 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. First of all, I'd like to welcome you know those who attended the Nokia Live Capital Markets Day events in last March. For those who didn't, you know, you're very welcome, you know, in this session as well. I've been 5 years with Nokia, so it's been quite a journey and I thought I'll you know put things in perspective. 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. 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. Essentially it was we put together various assets from various parts of our business into CNS. As such, you know, this comprised Nokia's 2021 reset in terms of the phase of the journey that we were in. With it, we also combined a lot of cloud software and services capabilities.
It's a service mix of CSPs, enterprises, hyperscaler customers and partners, you know, helping them navigate essentially three 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 wanna make sure that this leads to a heavy monetization. Cloudification of the communication platform as we move to the cloud-native journey around software. 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.
As these transitions actually take hold, their alignment is really creating a new digital ecosystem, you know, which actually comprises of CSPs, hyperscalers, device manufacturers, application developers, consumers, as well as enterprises all coming together much more as the edge evolves. 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. First, a few words on the group structure in itself.
If you look at the four pillars of Nokia Software, you know, 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. 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. Our customers actually value really this openness and flexibility and intelligence and the automation that we build into their 5G networks. This business represents about, you know, 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, you know, to help monetize the customer network into the consumers and enterprises.
This portfolio includes a broad range of portfolio, which comes only from analytics, security and monetization. We also run this portfolio on any cloud environment and as a number. 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 a fifth 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 managed security capabilities, managed performance services, and it also provides solutions with the offer IoT connectivity as a service, which allows you to offer and secure, you know, 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. 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 develops 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. This is where we're 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. This unit, you know, currently young but growing at a very fast pace, is a unit that represents about 10% of the CNS revenues and is growing well. Underpinning all of this is really what we're calling, you know, the SaaS delivery model, and that all of these businesses will be delivered on a SaaS basis, giving our customers greater flexibility of creating value, and with a faster time to value.
We believe in, we are industry leading in the telco space when it comes to SaaS. I'll talk a little bit more about this as we go forward. 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, 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 five percentage points faster than the market in the growth segments. This is, you know, 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, you know, compete, often taking the number one 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, you know, forward aggressively with SaaS, which was met very positively by the marketplace and our customers and industry commentators. 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 creation.
We've worked hard over the last, you know, 12 to almost 17 months now, in rebalancing R&D and business to make sure that we target growth market opportunities. This is actually reflected in the shift in our business. As we look at, you know, our comparable operating margin, that will show progress as we improved our fixed cost position, you know, through the course of last year. If you get onto the next slide, we'll see, you know, the kind of the performance, and I think, you've probably had a chance to view our Q4 results and end of year Q1 results as well. I mean end of 2021, Q2, Q1 results.
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%-6% guidance we had provided in the Capital Markets Day in March 2021. We've seen good growth in the number of 5G core customers in both CSPs and enterprise space. We've also delivered, you know, high double-digit growth in our private wireless customers, total increasing the number by almost 164 at the end of last year and getting our totals greater than, you know, almost 500.
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 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, you know, this 5G investment in participating in this ecosystem, which is what we are calling this new digital ecosystem that is being created. With our portfolio and capabilities, we believe that we will be at the very heart of making the digital ecosystem flourish and creating value for Nokia, the ecosystem partners and customers and consumers and enterprises. 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 ecosystem players converge to combine their expertise and capabilities to actually deliver an end solution.
Actually in order to create new services such that they will be relevant in Industry 4.0, the Metaverse, and actually Web 3.0. These are all replicated at the edge cloud level. Leveraging, you know, 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. 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 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. 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. 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. Service chains will be required to make Industry 4.0, Web 2.0 and Web 3.0, and the mission-critical Metaverse a real reality. They need to be easy to find, be able to create and consume. 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 a digital marketplace, where application developers can find it and use it in a very easy manner. For CNS, this is a notion that we are calling as Network as Code. Network as Code is a fundamental building block for 5G monetization. I'll talk about this in a little bit in a few slides. This is the generational shift and opportunity. For CSPs, we believe we've identified almost 10-15 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.
Enterprise and consumers will also gain benefit of the new services and experiences. If we now turn to where CNS actually plays in this ecosystem, this ecosystem that we have provided, what we call as the digital ecosystem, we are ourselves investing to create value where we can identify each of the business units' role in this ecosystem. Core networks is at the heart of the digital ecosystem, making 5G core capabilities available. In an open, flexible, and an intelligent core is vital to creating value in our northbound as we deliver Network as Code to the digital ecosystem.
If you look at our role in the business application side, you know, 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. We also bring in things like convergent charging, AI and analytics that actually help CSPs improve network performance and crucially monetize their 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, you know, operating to ensure that we deliver those capabilities in a very efficient manner.
Finally, if you look at the enterprise solution unit, that not only provides software for campus private wireless, but to deliver high speed, secure, low latency connectivity at the edge. Also with the launch of what we've called as the Mission Critical Industrial Edge, it now allows you, which is a platform, to participate fully across a 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. Our combination of applications, cloud connectivity, and edge computing will be fundamental to drive Web 3.0 adoption at the edge and these edge web dependent technologies like AR, MR, robotics and Metaverse come on stream.
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. 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. In doing so, I'm gonna try to emphasize the area where we are seeing opportunity for accelerated value creation in the emerging digital ecosystem. If you look at, you know, the six areas, you know, 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. 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 six 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. We obviously underpin this, as I said earlier, you know, with our SaaS model. SaaS in itself is not a distinct growth market segment, but a highly transformational part of our go-to-market and one that will be believed 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, you know, as we look at these six growth areas and SaaS in relation to the digital ecosystem, I will group it into two sections.
The first section is really focused on growth segments that we continue to evolve in a predictable way. The other three areas are much more disruptive for, you know, which open up significant new opportunities for us. 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. 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. We did not actually, quite frankly, stop here.
We see three areas of, you know, disruption where we can actually deliver accelerated value creation, and that builds on our technology leadership and marketplace, you know. Let me begin by campus wireless and industrial automation. Operating at the edge, it represents really, in my view, a microcosm 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, you know, in the near future. 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, you know, 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 hyperscalers such as Google, as well as with key CSP vertical 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 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 Wi-Fi to meet the wide range of customer connectivity needs all in one system. We've also delivered, you know, 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. 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 solution unit.
We'll continue to ramp up R&D and operations and sales resources. 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, Taqtile, which is profiled here, is a good example of a digital ecosystem actually in action. Taqtile delivers real-time content when and where it is needed with an augmented reality work instruction tool for a deskless worker. Taqtile also provides critical work instructions on a tablet or mobile devices, and heads-up displays, and information which presented very clearly enabling actually workers to complete very complex tasks in a very efficient and safer manner than ever before.
Combining, you know, Taqtile'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. This is a good view as to how we continue to progress in the private wireless space. 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, you know, very, very critical to drive disruptive change. Monetization is gonna be crucial in an ecosystem in order to make sure that the CSPs are being able to drive maximal value of the deep investments they're making into their networks.
Be that in slicing, network abstraction for specific applications, convergent charging, or simply enabling developers to quickly and, you know, 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 gonna charge in this ecosystem. We've also enabled cloud charging on the public cloud, and these are the types of capabilities that are gonna be very necessary to monetize 5G. However, there is even a more transformational monetization model that is required.
This is what I refer to as Network as Code, which we believe can be a game-changing shift in monetizing 5G opportunities, as we go forward. 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. This is what we will enable, we call as 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, you know, 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 enhanced, secure, high-definition video to protect actually critical facilities and infrastructure. In doing so, a variety of new monetizations, you know, opportunities are created for not only the network provider, but it actually creates value for even the ecosystem partners that go into it. 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 more agility to be able to deploy this, new types of capabilities. Moving to telecom, SaaS can actually cut customer IT costs by well over 25% over five years, as opposed to the existing software model, delivery model, and this is, you know, 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, you know, as opposed to being able to, deliver it and consume it as a service.
SaaS will be a key area of industry leadership for actually CNS. We have actually now three 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. For 2022- 2023, 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.
By 2024 and beyond, we should expect rapid growth as we see developing customer references, and continue to improve on our own operational automation. We anticipate that this will start to host hundreds of tenants over the next few years over this infrastructure. We will also move beyond our initial services into much more comprehensive high-value solution suites, including what we call 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. That's why we are shifting our notion to being able to deliver use cases that deliver clear outcomes to the businesses that are consuming it.
On a long-term basis, if you look at, you know, how these stack up over a longer term in terms of value creation, these three disruptive value creation levers of campus edge, Network as Code monetization, and SaaS present significant opportunity for CNS. 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 another 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. Finally, if you look at SaaS and cloud ARR, and in the world of SaaS and cloud, you know, 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. This is where we are really you know, excited and focused on execution to make sure that our strategy to capture these three new disruptive opportunities are highly focused. We're really building ring-fence teams to make sure that they are very highly focused and driven on these initiatives to go forward.
All of this is great unless we don't talk about customers. It's important that I give you a little bit of a view as to how we are looking at the customers. 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. In collaboration with Nokia and Edgecom, we have transformed the private LTE network to next generation 5G standalone private network. It covers the whole factory area and provides excellent opportunities for technology evaluation, development, and innovation in the Konecranes Smart Factory. I think regarding orchestration automation, in a previous statement I had on this topic, I said that 5G is not possible without it.
I also said something like I really out of everything, I put it all the way to the top. We saw Nokia being first in the market to innovate the 4G and 5G slicing area. Now we want to be the first in the world to deploy the Nokia innovative slicing solution. Nokia is giving you the flexibility to adapt to any new things that come down the road that today you don't even know what's gonna be next, but you can in fact implement what's necessary.
Exactly. Any, I don't know, but many. Okay.
Now we have the local LTE network in place, so it's possible to take the data automatically into our computer systems. This is a huge efficiency improvement. Okay. I hope you got a flavor of some what some of our customers are saying. If you look at this next kind of chart, it gives you a kind of span of our customers around CSPs, asset-intensive industries that are using our solutions in manufacturing, in healthcare, in education, in sport venues, and even in 5G microbreweries. That's an interesting one. Since CMD in 2021, you know, 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. In specifically in the 5G SA core market, you know, 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, you know, products in themselves. And actually with almost more than 250 core networks under execution, you know, this gives us, you know, immense industry experience and expertise, you know, to continue our you know, growth as we go forward. This is also gives us a, you know, a significant opportunities actually as tier two operators increase their investments in 5G.
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. 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, you know, down the digitalization journey. 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, you know, an experienced partner that actually works with them and brings that knowledge to bear. And not only, you know, through our market-leading portfolio, but also the expertise and the insights that we have actually gained, you know, through this process.
As our customers view this Industry 4.0 data and the industrial and enterprise Metaverse, as we are calling it, you know, there's deep acknowledgement that these advances will create a demand of a, you know, totally new types of capabilities, one that needs to be integrated within the digital ecosystem and actually starts to operate, you know, closer and closer to the edge. We're seeing more and more organizations interested in transformative capabilities around campus private wireless and industrial automation. It's very clear that it's understood that they actually hold the key to enhanced productivity, efficiency, and safety as we go forward. They're already starting to transform in how these industries operate, and we believe we're still actually pretty much scratching the surface of the potential market opportunity that exists around.
I'd just like to take a couple of examples of two customers on this next slide. 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. It will give DISH the automation required to meet evolving customer needs, you know, allowing it to support new enterprise and consumer 5G use cases very, very quickly in a secure manner and across multiple cloud stack and user premises themselves.
This also gives it 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 it brings. KDDI are you know a very key customer of ours in Japan, which is increasingly you know looking at how they can reduce their energy costs, but also to actually manage you know carbon emissions. This allows them to help you know not only you know reduce overall energy bills by using our Nokia AVA for Energy, and they've actually been able to get you know up to 20% better usage in terms of energy consumption.
This is a good sustainable patterns of energy usage that we can deliver. It also provides a very coherent energy control that adapts actual consumption to traffic levels while maintaining and ensuring a premium user experience to their customers. We are now delivering this solution, you know, on a SaaS basis. This is where we actually, you know, bring to bear a telecom expertise, artificial intelligence, cloud-based delivery that will actually characterize our digital services operations going forward. In closing and trying to move into Q&A, I'll provide some closing thoughts, and thank you for listening to, you know, the evolution of our strategy. The execution that you see is really the strategy that we have represented here. 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 within the portfolio realignment, sales growth, and improved profitability, all reflected in our numbers. This gives us a good foundation, you know, to going forward into 2022 and beyond. Secondly, we've consistently talked about technology leadership, which is the underpinning of our strategy, which will provide the key differentiation. 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. This doesn't stop here. With our introduction of SaaS, we're also leading the telecom industry as a whole and in an area where it has previously been slow to innovate.
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. 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. We are absolutely committed to creating a new value, leveraging the Network as Code for application developers to deliver innovative experiences and services for consumers and enterprises, and CSPs endeavor to monetize, you know, 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, you know, buying and selling services. We feel that we are in a leadership position in these spaces, and we intend to continue to accelerate and extend that leadership. Finally, when we spoke about last year, we, you know, 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. With that, I thank you very much for listening for the last 40 minutes or so, and I think I will turn it back to you, David, to take on question and answers.
I'll move to the Q&A session. As we've mentioned before with these events, they're very much focused on our products, technology, and strategy rather than a financial update. We would ask that you would focus your questions today on our Cloud and Network Services business. As a courtesy to others on the call, please limit yourself to one question and a brief follow-up. We're also delighted to have on the line with us Carl Breen, who is the VP of Strategy for Cloud and Network Services, who may also appear to assist with some of the questions. With that, Rocco, could you please give the Q&A session instructions for those that have dialed in?
Absolutely. We will now begin the question and answer session. If you are also viewing the video webcast, please remember to mute the audio on your computer before asking your question as there is a 30-second delay. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. I will now hand the call back to Mr. David Mulholland.
Thank you, Rocco. We'll take our first question from Aleksander Peterc from Société Générale . Alex, please go ahead.
Yes, good afternoon, thank you for the question. 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, AI analytics, private wireless, automation, and managed security, was 37% of CNS revenue, and the remainder of 63% was legacy. You intended to reverse this shift by 2023 to the opposite situation, so having 63% in emerging and 37% in legacy. Are we now halfway? How did this mix evolve? If you could tell us that. The second question will be more on how we should 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. Thanks.
Sure. Thank you, Aleksander. Appreciate the question. As you know that, you know, in our Q4 results, when Pekka, you know, talked about our performance, he reflected some of this information in that. Just to reiterate some of that, in 2021, our emerging business actually grew 13%, while 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%. We've made almost a five to six percentage points improvement, you know, from where we were. Emerging was, you know, between 37% and 38% to getting to about 43%. I think that trend will continue.
That's where the growth that we continue to see. You know, I would say that, you know, we're making good progress. As always, this is a journey, but we are very happy with what we've achieved thus far in terms of the increase and the shift. With respect to the operating margins on a CNS point of view, you know, we have not given guidance on individual BG margin targets for 2023. Rather, we have expressed a goal of actually reaching at least 14% for the business group at a group level in the long term. That said, you know, the guidance for 2022 for CNS was more in the four to seven percentage points.
Important to note that, you know, we've decided to make additional investments in private wireless considering that we see that growth opportunity. This is why we want to have that flexibility of being able to, you know, provide capital allocation against what we see are emerging trends and have the flexibility to shift that. Beyond 2022, we clearly have an ambition to extend our margins, which will be, you know, helped by portfolio rebalancing. It'll be helped by volume and mix. It will be helped by, you know, 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-
Great. Yeah.
- Andrew Gardiner.
Thank you very much.
Thanks, Aleksander. We'll take our next question from Andrew Gardiner. Andrew, please go ahead.
Thank you, David. Thank you, Raghav. I suppose some of my questions related to what Alex was asking and sort of how you closed out your comments, Raghav. You know, given your business has been newly formed at the beginning of last year, and you clearly had this shift in mind, you know, sort of more towards the growth, emerging areas and away from legacy. I mean, it felt at times last year that, you know, 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 Network Services, the number of quarters was down. Do you feel like...
That sort of choppiness in a way can make it difficult for us to model sort of 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 or the non-growth areas? Have you got to a level where it's, you know, gonna be a bit more stable, or is that, you know, is there gonna be further pressure on that front while the new stuff grows?
No, thank you very much. You know, very good question. You know, to be very specific, on the Cloud and Network Services business unit, which is really our managed services business. You know, our shift has always been to focus on more intelligent and automation capabilities. This is what will help improve margins on a longer time. You know, we have actually exited parts of the portfolio, you know, that were first generation people only kind of approaches to our managed services business. We continue to use a very disciplined approach in the areas where we needed to, you know, provide more focus as we were rebalancing the portfolio. I think we've made excellent progress, you know, on that.
In addition to that, you know, we continue to grow some of our businesses, even in CCS, you know, things like, you know, the data monetization piece, even in WING with, we've, you know, signed new customers like Telecom Egypt in end of last year, and we're adding new connections from our existing customers. 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've got to realize as you go to the 5G world and you go to, you know, where the network starts to disaggregate, and how to deliver that efficiency, is all gonna come through automation, and trying to drive to cloud.
We're making fundamental changes in bringing new technology capabilities to make sure that areas which, you know, 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. We're introducing a lot of other types of capabilities as well, in terms of, you know, we call this continuous integration, continuous delivery capabilities to deliver software in a better way and so on and so forth. Some parts of the portfolio like, you know, 3G legacy OSS these are being refueled into, you know, new portfolio evolution.
Those will naturally, you know, harvest itself as 3G becomes less pervasive and 4G and 5G upticks continue. That naturally happens. You know, we have a good plan as to how to make sure that we support that, but also transition, you know, to the new part of the portfolio. I think we are in a good shape and we continue that. You know, there's always more work to be done, but we feel very good where we are. I don't think it'll put that pressure on us going forward.
Did you have a brief follow-up?
Thank you very much. No, that's clear. Thank you.
Sure. Thanks, Andrew. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.
Thanks for taking the question, David. Thanks for doing this call. I wanted to see if you could discuss
How your business unit is integrated in or collaborates with the network business unit, where is that kind of collaboration important? Where are the occasions where you operate very much independently? I'll give you my quick follow-up as well now, which is, does the transition to a SaaS model act as a revenue headwind during that transition period? Thank you.
Sure. You know, both very, very good questions. I think if you look at, you know, how, you know, I think the value that we bring as Nokia is that we have multiple business units and these are very leverageable to each other in terms of creating bigger value. If you just look at the private wireless space, you know, we bring a very elegant, simplified solution to the market, which is very easily consumable by campus network, you know, the industrials and so on and so forth. That solution comprises of not only a lot of very automated software and platforms, but it also combines the radio coming from the Mobile Networks group into one integrated offer.
You know, solutioning that and making sure that it's a highly integrated, something that could be turned up in minutes, in a campus environment, is where there's deep cooperation. You know, this is a good example of how we actually leverage, portfolios, in bringing, you know, full-blown solutions, and that's a market differentiator for us going into the market in itself. These are very clear leverage points. This cooperation is. Also, if you think about as we are evolving software, we have a unique advantage, other than a pure software player. Then the evolution of the network in terms of what's going on in the details of that knowledge is also available to us to evolve our software in a much more elegant way.
We can actually build software not only understanding, you know, the business logic that we are building, but understanding the network evolution in other areas such as, you know, core IP transport and these areas, which are gonna be key in terms of realizing value going northbound into the ecosystem. We feel that cooperation, that participation, not only on solutions, but knowledge sharing, is a very big differentiator for us going forward. With respect to the second question, you know, in terms of SaaS, first of all, we believe SaaS will enable new types of use cases at a much faster pace. Some of it will actually be additive to where we are in terms of what we can offer.
You can offer them quicker, you can offer them more agile, you can offer them, you know, in a use case form. Some of that will be additive. Yes, you are right. Over time, when you get the larger portfolios moving, you will see that transition from going from an on-premise basis to a SaaS basis, where, you know, there could be some impact on the top line, but then the margin expansion as that starts to scale will be significantly higher than you had previously. That's a typical transition when the mature portfolio goes through. We see the opportunities in two bases. One is new types of use cases that will be in addition being able to bring the new types of capabilities that I was talking about, which can be brought to bear much quicker, faster.
We'll see an uptick on that. We will see also that transition in the mature portfolio as we go forward through that on-premise option. Then again, as you scale that, and then as that transition more, you know, the whole, the margin profile changes in a SaaS business, as you know well, you know, what happens in the industry, what the IT industry went through. I hope that helps.
Thank you, Simon. We'll take our next question from Frank Maaø from DNB. Frank, please go ahead.
Yes, thanks for taking my question. I was wondering if you could talk a little bit more about you know how the transition to SaaS actually has the potential to lower costs. One thing is kind of the technicalities of timing in terms of how you charge and so on. Actually, there should be quite a lot of margin upside in kind of the simplification of the whole production you know eliminating a lot of individual customizations and patches and so on, and just you know managing everything from a central cloud and distributing this to the various premises or as you talked about.
I was just wondering if you could, if you had done any calculations on the potential margin implications?
Yeah.
of going to that type of production model, if you see what I mean.
Yeah. No, that's a great question. I think you hit on the right, you know, points in terms of the value of SaaS, you know. Typically in addition to the revenue growth from new services, and you get more consistency in terms of the revenue prediction, you know, we also see a significant cost advantage from a much more uniform deployment with all of our customers, so that, you know, when you're doing a SaaS, you're running a platform which everybody is consuming, so you don't have various versions out there and trying to manage and maintain different versions.
There's a huge, you know, cost advantage, and simplification that naturally happens as a result of that model. This is gonna come also for, you know, our customers on current releases, because a lot of times you're trying to keep customers on different types of releases. The next piece where you actually start to gain a lot of margin benefit is actually having a significant amount of automation in the operations and actually the life cycle management of that software, but also the customer. You have a much more simpler, you know, order billing and provisioning, and you can bring on new services very, very quickly.
As I noted in the presentation, this is one of the three disruptors in the market that will capture opportunity. You know, what I'm a little hesitant to share is that exactly we've started to model that internally in terms of how the margin expansion will happen over time. We all know that once it's running at scale, it's running significantly. You know, that margin expansion in a software business can go from 60%-80% in the software business. You know, we're well aware of where the goals and the targets are. That is why, you know, and that's where the AR starts to kick in, and all those other elements start to kick in.
We clearly see that benefit. You know, the journey has just started. We've just signed our first few customers, so we're early and nascent in that journey. We believe enterprise will move at a much faster pace, but the CSPs are starting to see the value of doing that in terms of giving them the agility, and the cost advantage and the operational advantage as well, because it brings down operational costs for them as well. A great question, and we see those benefits as well.
Do you have a follow-up, Frank?
No, that's. Thanks for that. No further questions.
Sure. We'll take our next question from Janardan Menon from Jefferies. Please go ahead.
Hi. Good afternoon. Thanks for taking the question. So I was just wondering about what your growth outlook, you know, what are your ambitions there? You said the addressable market is gonna grow at 5% between 2021 and 2024. But beyond 2024, you know, how do you see the market growing and, you know, what can we sort of think, including what you said about the SaaS transition, how can we think about what your own division's growth rate is? Is this a business that can be growing, say in the high single digits, or can it even touch low double digits? And as part of that, you know, is M&A part of your strategy?
Are there pieces of the puzzle that you think you'll be better off buying rather than developing in-house, which could sort of flesh it out and help you grow faster? My follow-up is really on the, you know, the change to SaaS. You said well over 50% will be SaaS plus ARR revenue. How do we see that, you know, starting from a very low level, I presume, sort of 1% or something like that right now. You know, how do we see that improving over the next few years? Is that a big jump after 2025 or does it keep going? By 2025, can we expect it to be about 10% or so? How do we see that sort of progressing? Thank you.
No, thanks for the questions. So, you know, one is, I don't think that we are providing guidance, you know, beyond 2024. So I'm not able to, you know, provide specifics around that. But what I will say is that, you know, our goal, and our ambition, is very, very clear that we want to be able to exceed the growth rates that, the market is experiencing, and especially in the focused areas that we are focused on. As, as I shared with you, we made a clear, statement in the Capital Markets Day, last year in March, that these were the six segments that we were gonna grow, where we're gonna be focused on, and we're gonna grow faster than the market. And I think we've demonstrated that through, 2021.
Our ambition remains that we want to be able to exceed the growth rates, you know, that the areas that we are focused on, that we continue to take share in that market. That's the fundamental goal, and it doesn't change for us, you know, beyond 2024. It's the same today, and we will continue on that journey. That's kind of, you know, would be my comment on the first part of it. You talked about M&A. Obviously, we can't comment about M&A. What I can say is that we continue to, as we drive into new value creation, we continue to look at every option of build, partner, and buy. I mean, these options are always something that any business will continue to look at.
Each of those options are considered on the basis that we can provide a fast way of, you know, creating value and not trying to reinvent things. Partnering would be a key aspect. If it requires us to go down the M&A track, you know, we would not be shy going down that track either. These are three options that we absolutely have on the table, and we continue to evaluate them and if it provides us acceleration and a better way of driving the business in terms of value creation, we will consider all three options. That's something that we are very, very focused on. With respect to SaaS, you know, in terms of, you know, what margins expansions we will see.
Obviously, as you know, any SaaS business, when you invest on it, you know, there is an investment in the business platform and in the technology platform that you have to make as you bring a SaaS business online. It's a, you know, five- to seven-year journey to really get a true SaaS at scale that is generating the high margins that we are talking about. You know, we're really in the first year of that kind of journey. We believe the enterprises will move at a faster pace because that's just something that, you know, they're already doing. We believe that there will be acceleration on the CSP side over the coming years as 5G becomes more pervasive and we get into, you know, much more of connecting the ecosystem with the 5G ecosystem as well.
You know, this will become a pretty standard way of doing business, I believe, by the end of this decade. You know, obviously the margin expansion will be higher when you get to a higher scale, which will be, you know, after 2025. We believe that this is fait accompli in our minds. We know very clearly that and we took this bold step, you know, at the beginning of last year and announced it, that SaaS is, you know, here to stay and the benefits it brings, not only in terms of margin expansion and a way of running a business, but the agility and the innovation that it brings, you know, to our customers is phenomenal.
This is something we're very committed to, and we believe we are leading in the market in this space, of the players that we compete with. We feel very good in terms of where we are. I hope that helps, but I can't get very specific in terms of the exact, you know, point in time. You know, we have a good model here, but we are early stages of that model, but we feel very good in terms of the outlook.
Thank you, Janardan. We'll now take our last question from Peter Nielsen from ABG. Peter, please go ahead.
Thank you very much. Thank you for the presentation and the education on SaaS. If I may ask one question on SaaS, please. You're obviously saying it's early stages of the process. What is the main motivator from the operator side in terms of moving to the SaaS model? And what is the main hurdle they have to overcome from their perspective, so to speak? I appreciate it's in the first year, but still I'd be interested in terms of your main selling point. Is that the 25% cost reductions? Is that the main motivation for them? And then just if I may add a follow-up.
You spoke a little about, since the presentation on the core markets, which still is 50%, or the core, is still 50% of your business. It appears that you're having good momentum on 5G core, but nonetheless, the market seems to be slowing down or even declining at the moment. Could you give us any indication how you view the profile for the 5G core market going forward for the next, say, six, 12 months, please? Thank you.
Sure. I think on the first question, which is, you know, what's motivating our customers to go to SaaS, you know, and what are some of the blocking factors? I think the motivation is, you know, very clear. You know, as you disaggregate the networks and as you're getting into 5G, the networks are becoming actually much more complex than they have ever been. Because now you're disaggregating at the infrastructure layer, you're disaggregating at the PaaS layer, you're disaggregating at the application logic layer, and then you're disaggregating at the ecosystem layer. The
You know, in the past, if you look at the 3G, 4G era, you know, we've supplied, you know, full systems, you know, and you know, they were engineered systems that were actually delivered as an end-to-end, as a single vertical box. Now the world is moving much more to a horizontal play of bringing the horizontal disaggregation that's going on so that more innovation can happen at multiple levels. This creates a lot of network complexity for our customers that they have to manage. You know, how do you manage that complexity? If you're gonna try to manage that all by yourselves, you know, that's gonna be a lot harder. If you can consume that capability, it's a lot, not only easier to consume, not having to manage, but also reduces your operational cost.
Then second part of it gives you agility, because if you're trying to deploy on-premise, it's gonna take you months, you know, sometimes nine months, 12 months, 18 months to deploy some of these projects. Here you have the ability to, if you're on the SaaS model, say, "I want a particular capability," and you can do it in, you know, hours or, you know, maybe a few days, consume that capability. It gives you a tremendous amount of agility, which is what's gonna be required in the 5G space when you bring a digital ecosystem together. The life cycle of being able to bring new capabilities into your network, you know, starts to reduce dramatically through this process. And the cost also starts to drop in terms of driving it.
This is the final piece, the security piece. As you disaggregate, you are more vulnerable to security risks that might occur in a network in itself. To manage that security risk across those multiple layers, you've just compounded that security problem in a bigger way. If you can get that all in a secure, nice way from a SaaS perspective, the agility, the security, the innovation, you know, these are all very, you know, understood factors that, you know, motivate customers to move to this. Some of the blockers are that, you know, if you look at our world, our industry, especially on the CSP side, the networks have a very high requirement for resiliency, security, latency, all of these kinds of areas.
Putting that all into a you know a SaaS which is sitting on somebody else's you know cloud infrastructure behind a firewall. This has been an area that has you know in the traditional part has been very difficult for the operators to give that up. Not give it up for a reason of saying you know but you know the the cloud vendors to be able to provide that level of resiliency latency security requirements that are necessary. This has been the blockers in the past, but now that infrastructure is becoming extremely secure. You're starting to run mission-critical workloads. The latency requirements have gotten much better. As they get confidence from those parameters, those blockers will go away. Those have been you know some of the blockers.
also our industry has been, you know, CapEx heavy, and this is much more of an OpEx model, so, you know, that transition also has to be made. We see that, but we see that, you know, the journey has, it's fait accompli that, you know, eventually those technical issues are easily solvable, and they're getting solved. You know, that appetite to be able to trust that, you know, has gotten bigger and bigger, and we are seeing demand picking up in that particular space. With respect to the core question that you asked, you know, would a decline because it's a very mature space, and would a decline in the CSP world. I see it in a different way.
First of all, you know, our focus is on the consumer, it's on the enterprise, and we've started this third pivot onto the digital developer, which we think is a very important piece. The core delivers capabilities of the network and all the different types of areas where you can actually take network capabilities and render it to this ecosystem. The role of core will become even more important, and as the edge develops, you know, the 5G core will become very, very important because you're managing all of the data traffic at the edge. You know, I think where the growth will come over time is much more coming also from the enterprise space. As you see, even in our private wireless space, you know, we're starting to get more and more into the 5G space.
We will see, you know, a pivot to enterprise where growth will come, you know, even on the core space. This is going to be another area and actually where, you know, as we bring core, you know, into the same framework of, as I said, the underpinnings under SaaS, that becomes more consumable because these will obviously be smaller enterprises that will consume the core, and it's a much more efficient way of delivering core. We actually see, you know, core, while it's mature in the CSP space, we see it playing a role in exposure of the network into the ecosystem. We see a pivot into enterprise in terms of a growth trajectory as well. We see that continuing to evolve.
Yes, there will be, you know, as Industry 4.0 evolves, you know, we will, you know, continue to see, you know, that growth. It's still nascent, but it's growing at a pretty fast pace, so we still see a good opportunity there in terms of our strategy. I hope that helps. David, you're on mute.
My bad. Sorry all. So thank you, Peter, for the question. Thank you, Raghav, for your time today and for all the answers you've given, and hopefully everyone it's been extremely helpful for you today. That does conclude today's call. Just a quick disclaimer at the end, we have in today made a number of forward-looking statements that involve risks and uncertainties, and actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external, as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on Form 20-F, which is available on our investor relations website. Thank you, everyone, for joining us today.