Report: Nokia's networks unit may become a 'mini Ericsson'

The billions in in net cash Nokia (NYSE:NOK) is expected to gain from its upcoming transactions with Microsoft will go a long way toward positioning Nokia Solutions and Networks (NSN) as a strong network infrastructure company and could enable it to make inroads in areas such as self-organizing networks (SON) and software-defined networking (SDN), according to Strategy Analytics.

Microsoft (NASDAQ:MSFT) is paying around $7.2 billion for Nokia's handset business and a license to its patents and mapping software. It is also providing Nokia with some $1.975 billion in financing in exchange for three tranches of senior unsecured convertible bonds issued by Nokia. Nokia will use financing to pay down debt from buying out Siemens' interest in NSN and for general corporate purposes.

NSN should consider using some of Microsoft's money to enhance its radio access network (RAN) offering by acquiring an emerging SON vendor or expanding its SDN focus, said Guang Yang, senior analyst covering wireless networks and platforms for Strategy Analytics, which recently issued a report on NSN's prospects.

"SDN offers a disruptive opportunity for vendors to break into the market with OpenFlow-compliant software on 'commodity hardware,' and NSN's continued restructuring that moves it away from specialty hardware manufacturing puts it in a very strong position to embrace the low-cost SDN model even faster than competitors like Huawei, Ericsson (NASDAQ:ERIC), Alcatel-Lucent (NYSE:ALU) and Cisco," Yang said.

Strategy Analytics said NSN is already poised for growth in RAN, SDN, cloud-based voice and IMS services. With new investment, it could become competitive in the network infrastructure core. This, in turn, would morph NSN into something of a "mini Ericsson" with "a very competitive cost structure," said the research firm.

"NSN's major weakness is its lack of strong in-house IP software routing and gateway expertise that can add unique value to its 4G All-IP architecture and the SDN control plane," said Sue Rudd, director, service provider analysis, at Strategy Analytics.

She suggested the vendor will need to form strong partnerships and possibly make acquisitions to boost its strengths in multi-vendor HetNets, smart backhaul, Wi-Fi roaming and content deliver networking (CDN).

In an interview posted on Nokia's blog, company Chairman and interim CEO Risto Siilasma said Nokia "will continue to manage NSN as a strong, independent unit." He cited NSN's strengths in mobile broadband, especially LTE, and said the company will pursue strong and focused investment in R&D.

For more:
- see this Strategy Analytics release

Related articles:
Nokia's interim CEO Siilasmaa maps out company's future
Nokia's $7.2B gain could make NSN a powerhouse in the cloud
Report: Huawei, Ericsson lead LTE market amid growing deployments
Report: Cisco, NSN well-positioned in growing SDN market
Nokia Siemens touts cloud-based VoLTE tests
NSN records operating profit, but Q2 sales fall 17%

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