Nokia Pins Bulk of 5G Recovery on Challenging 2021

Nokia’s overhaul is beginning to steady some areas of the business, and new CEO Pekka Lundmark said he expects to regain 5G competitiveness by 2022.  Nokia’s overhaul is beginning to steady some areas of the business, and new CEO Pekka Lundmark said he expects to regain 5G competitiveness by 2022.  “2021 is the year during which we believe that, for all relevant and significant parts, we will complete the catch up” on 5G, he said on the company’s fourth-quarter 2020 earnings call, according to an AlphaStreet transcript.  Nokia struggled in the first wave of 5G under Lundmark’s predecessor, prompting a complete overhaul of its semiconductor strategy precipitated by the abandonment of high-cost Intel chips in favor of a new system-on-a-chip (SoC). The vendor’s lower-cost 5G radio access network (RAN) portfolio accounted for 43% of all shipments in 2020, and it remains confident that gear will comprise 70% of product shipments by the end of this year and 100% of all shipments by the end of 2022. Nokia beat its earlier target of 35% of all 5G RAN shipments in 2020.  Looking beyond Nokia’s early misfires on silicon for 5G, “there are clearly areas where we don’t need any catch up anymore,” Lundmark said, pointing to network slicing, software, and enterprise as areas of particular strength for the company.  “We are approaching a situation where there is no need to talk about catch up anymore, but there is a lot of work still to do this year. But once we get through this year, I believe we will get there,” he said.  Indeed, the Finnish vendor warned that 2021 will be a year of ongoing transition and challenges. Nokia reiterated that it expects to realize no profit from its Mobile Networks division this year, but it expects conditions to improve after this year.  That business unit’s revenue declined 7% year over year to $6.03 billion during Q4, and Nokia blamed the decline on lower sales in mobile access and optical networks. The company also lost a significant 5G RAN contract with Verizon last year when that operator opted to shift that business to Samsung in a massive $6.64 billion deal.  However, Nokia kicked off 2021 on a more positive note when T-Mobile US signed a new five-year 5G RAN contract with the vendor last month. Lundmark said Nokia’s RAN challenges weren’t related to products as much as deployment services and a decrease in legacy RAN sales. He also said the company is struggling with industry-wide price erosion in the RAN space, particularly in North America, which is Nokia’s largest market wherein it also drives its highest margins.  Nokia estimates it ended 2020 with a global RAN market share of 27% to 28%, excluding China, and it forecasts that share to end up in the range of 25% to 27% by the end of 2021. On a regional basis, Nokia’s sales in North America increased 11% year over year. Sales were flat in Europe, its second largest market, while revenue declined 10% in Greater China, slid 38% in Latin America, dipped 20% in the Asia-Pacific region, and were down 10% in the Middle East and Africa.  Revenue in Nokia’s Software business group declined 1% year over year to $1.03 billion, and revenues from its Technologies division dipped 2% to $457 million. Nokia reported total Q4 revenue of $7.85 billion, a 5% year-over-year decline. It also ended the quarter with a net loss of $3.12 billion, but it blamed the bulk of that loss on the derecognition of Finnish deferred tax assets that the vendor booked during the quarter.  The company said it’s inked 195 commercial 5G contracts and has its technology deployed in 45 live 5G networks globally to date. Nokia expects its business with network operators to be flat in 2021, but noted its increased optimism about near-term growth with enterprises. “The enterprise market is expected to grow close to double digit over several years to come,” Lundmark said. “This is clearly one place where we want to find growth and we are finding it.” The vendor’s enterprise-related sales increased 1% year over year in Q4 and were up 11% for all of 2020.  Nokia landed 79 new enterprise customers during Q4 and it currently has 260 private wireless customers. While private wireless equipment and services for enterprises is of particular interest, Nokia is also selling routing and fixed access products to enterprises, Lundmark explained.  Finally, Lundmark said his C-Suite shakeup, which is decreasing Nokia’s leadership team from 17 people to 11 is almost complete with just one appointment, a chief corporate affairs officer, still to be made. “Everything else is now in place. This organization has been effective now for one month,” he said.  “This whole thing that we have done to the organization and the operational model is a major simplification from the previous one,” Lundmark said. “In the previous model, a fairly simple mobile access deal required five management team members to participate. Now, it is only one and that simplifies things greatly.”