Nokia’s President and CEO Pekka Lundmark conceded that the loss of AT&T’s open RAN business to Ericsson has “overshadowed the discussion since last week” and indicated that Nokia is taking it as a warning signal that it needs to revamp its Mobile Networks business to safeguard future growth.
“AT&T has confirmed to us that this decision was not because of our performance, our technology, or the performance of our services. Our understanding is that … it is mostly financially driven. But having said that, despite the fact that we have made [significant progress on Mobile Networks] over the past years, we are not happy with where we are in that business financially,” Lundmark said.
Ahead of what appears to have been a hastily arranged but wide-ranging strategy update on Tuesday, Nokia also downgraded its comparable operating margin target to be achieved by 2026 from at least 14% to at least 13%. Although it said it still sees a path to achieving at least 14%, “considering the current market conditions in mobile networks, this is deemed a prudent change.”
Scoring a hat-trick
A large part of the strategy update was devoted to the vendor’s Mobile Networks business, when Tommi Uitto, president of Mobile Networks at Nokia, set out how the division will be positioned in future.
Uitto also took the opportunity to highlight three pieces of good news, including the announcement on Tuesday that Nokia and Fujitsu have started deploying Deutsche Telekom’s open RAN network in Germany under an agreement signed at MWC this year.
The move also marks Nokia’s return to DT’s network for the first time since 2017; the operator has been using Ericsson and Huawei for its 5G RAN in Germany. Nokia pointedly said it will “replace the incumbent vendor in the deal.”
“Moral of the story: you never give up. And you can win back customers that you once lost,” Uitto said. He also noted that there are still opportunities to win business in countries that are banning or restricting high-risk vendors in their 5G networks.
In addition, Nokia has agreed to acquire North America-based Fenix, which specializes in tactical 3GPP communications solutions for defense communities. The vendor said this forms part of its diversification strategy to be less reliant on large communication service providers.
Thirdly, it is stepping up its activities in the field of enterprise private wireless through partnerships with Cisco, HPE and Microsoft Azure.
“They said that they have customers who need private wireless, and … who want to work with Cisco, or HP, or Microsoft, but they need high performance RAN from a tier one supplier. So that’s where we come to play,” said Uitto. “We have now struck partnership deals with them. We are developing the go-to-market with them and their managed service providers … their sales channel. And we have progressed very well with the interoperability testing so far. We’re ramping the sales channel, the sales capabilities through supply chain, and the pipeline is developing quite nicely.”
Trimming down
In terms of the mobile networks overhaul, Nokia said it has begun to “re-baseline its operations for resilience and profitability while maintaining its commitment to technology leadership and protecting its R&D output.”
The vendor said these combined actions, to be completed by 2026, will enable Mobile Networks to achieve a double-digit operating margin with net sales of about €10 billion, down from the around €11.5 billion that would be required today.
In addition to serving CSP customers, the unit intends to accelerate its offerings to faster growing segments, including private wireless for enterprise, cloud RAN, open RAN, the defense sector, as indicated by the Fenix buy, and ultimately 6G.
For 2024, Nokia said the spending environment for mobile networks remains challenging due to the market decline in 2023 “and a normalization in India in 2024 after rapid 5G deployment.”
“Following that and AT&T’s decision to concentrate its radio network around a single vendor, Mobile Networks’ net sales are assumed to decline. However, Mobile Networks assumes a low-single-digit operating margin due to the actions it is taking to reduce costs,” Nokia said.
In his final summary of proceedings, Lundmark said that essentially Nokia is not happy with its share price, which fell sharply after the AT&T news but picked up slightly on Tuesday.
“We will not rest until we deliver better value for our shareholders,” he said.