Nokia has missed out on most of the big 5G contracts in China, but on today’s first quarter 2020 earnings call with investors Nokia CEO Rajeev Suri said, “We understand yesterday, according to China Unicom, that we won the core deal as well as the virtualized IMS.” He didn’t specify the scale or value of this deal.
Suri, which is leaving Nokia in August, placed some of the blame for Nokia’s losses in China on the fact that “non-Chinese players have received considerably less share in recent rounds.” According to Chinese media reports, the bulk of 5G contracts from the three major Chinese carriers — China Mobile, China Telecom and China Unicom — have gone to Huawei and ZTE, which together have commanded about 85% of the 5G deals. Sweden-based Ericsson snagged about 10% of these deals. And Nokia wasn’t even mentioned as a winner by the Chinese media outlets.
Suri today said, “We have consistently said we take a prudent approach to share in China. We will prioritize our 5G radio activities on globally-required features as opposed to those that would have been required for specific local requirements.”
In terms of its Q1 2020 numbers, Nokia reported net sales of $5.3 billion a 2% decline year-over-year (a 3% decline in constant currency terms). The company also lowered its guidance for the full year 2020. It adjusted its earnings per share from EUR 0.25 to EUR 0.23. And it lowered its operating margin from 9.5% to 9.0%.
This follows on a big down-year of 2019 when Nokia lost about 30% of its stock value, which it largely attributed to problems with its 5G silicon. When the company first started working on 5G, it chose field programmable gate array (FPGA) silicon. An FPGA is an integrated circuit designed to be configured by a customer after manufacturing, providing a certain level of programmability. But it turned out the FPGAs were too expensive, and the cost cut into Nokia’s 5G profit margins.
Today, Suri said that the 5G-Powered-by-ReefShark (PBR) silicon shipments are continuing to increase, and product cost reductions are proceeding well. In Q1 2020, PBR products accounted for approximately 17% of Nokia’s 5G shipments, compared to 10% at the end of Q4 2019. “We have started shipping some of the radio SoCs, especially massive MIMOs,” said Suri. “Now we’ve expanded that to the range of 5G; the baseband SoC will come later in the year.”
In Q1, the company saw a top line impact from COVID-19 issues of approximately $218 million, largely the result of supply issues associated with disruptions in China.
Nokia’s CFO Kristian Pullola said, “We expect our primary addressable market, excluding China, to decline in 2020 as a result of COVID-19. We now expect Q2 to bear the majority of the COVID-19 impact.”
The company said it also saw a massive increase in network capacity demands because of the coronavirus. From mid-February to mid-March, Nokia saw a 20-40% peak increase in lockdown-impacted regions through its operator customer base.
Suri said, “People have learned a lesson, and they want to prepare for the future.” Vendors such as Nokia see opportunities in fixed and mobile networks for increased capacity builds in the future.
Finally, Suri commented a bit on the company’s approach to open RAN and its work with Rakuten. “We have always been of the view that the industry eventually will be open, and we need to play rather than hide. We played the Rakuten one, much to our success. We were able to launch with them on time, but also we were able to up-sell a broad part of our end-to-end portfolio.”
Suri said vRAN and O-RAN are both progressing, but he predicts vRAN will see faster uptake. “It gives us an edge over some of the smaller players because ultimately vRAN and O-RAN also need that silicon capability and feature parity with the old, not just the new. On O-RAN, I think it will still take a number of years before it becomes meaningful for anybody.”