Nokia chief executive Pekka Lundmark said the first half of 2024 is expected to remain challenging for the Finland-based vendor, although he expressed confidence that there are signs of “green shoots” in the latter part of the year.
Speaking during Nokia’s earnings call for its 2023 fourth quarter and full-year results, Lundmark nevertheless conceded that these green shoots were not yet expected in its Mobile Networks unit, which he said will remain a difficult business this year.
Nokia announced in December that it was revamping its Mobile Networks business to safeguard future growth. The move came following the loss of AT&T’s open RAN business to Ericsson, which came as a bitter blow to Nokia.
At the time, the aim was to enable Mobile Networks to achieve a double-digit operating margin with net sales of about €10 billion by 2026. However, the vendor is now aiming for a 6% to 9% operating margin in its Mobile Networks business by 2026. In 2024, Mobile Networks is expected to see net sales fall by 15% to 10%, with an operating margin of 1% to 4%.
In the fourth quarter of 2023, Mobile Networks net sales declined 17% on a reported and 14% on a constant currency basis, driven by declines in North America, India and Europe. In the full year, Mobile Networks sales fell 8% to €9.79 billion. Meanwhile, group Q4 net sales declined 21% in constant currency, while group full-year net sales fell by 8% to €22.25 billion. The group operating profit for the year was €1.68 billion, down 27%.
Waiting for MNOs to spend again
Lundmark said the mobile networks market will remain tough for at least the first part of 2024. Echoing remarks by Ericsson CEO Borje Ekholm earlier this week, Lundmark said vendors are still waiting for mobile network operators globally to start investing again after tapering off their 5G spending.
“Investments have been very low, 2023 was a tough year for the whole market, most pronounced in North America. The fact still remains that only about 25% of base stations outside of China are 5G mid band, and a small majority of all core networks have been upgraded to 5G advanced. Those investments will need to come, because without that, operators will not be able to monetize 5G properly,” he said.
Lundmark observed that MNOs will ultimately be forced to invest as data traffic continues to rise, “but the reality is that nobody knows when that will come. I’m absolutely convinced that it will come. But we are not yet seeing concrete signs of it happening,” he said.
Nokia has already indicated that in addition to serving MNOs, the Mobile Networks 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.
AT&T, and the open RAN opportunity
Lundmark was inevitably asked about the ongoing impact of failing to win AT&T’s open RAN business. Here, he noted that Nokia still has a five-year contract with the U.S. operator that began in 2021.
“Negotiations are still ongoing with respect to how we execute on this contract. Before we have concluded those negotiations, it is hard to give a clear answer as to the how the trajectory of decline will look like. But clearly, we do expect our sales with AT&T to drop this year,” he said.
However, he pointed out that “irrespective of this contract,” Nokia will continue to supply microwave radios and femto products to AT&T and remains a key supplier in both Network Infrastructure and Cloud and Network Services.
On the topic of open RAN, Lundmark said he believes take-up of the technology is gradually picking up, but does not believe that the AT&T contract with Ericsson has led to an uptick in interest elsewhere in the world. He cited Dell’Oro forecasts that open RAN would represent roughly 24% or 25% of the total RAN market by 2028.
At the same time, Lundmark also advised keeping a close eye on contracts that claim to be open RAN, but in fact have the same supplier on both sides of the interface.
“We have two, real commercial O-RAN deployments ongoing at the moment. One is with NTT Docomo in Japan, and the other one is the recently announced Deutsche Telekom project in Germany. We have already connected our DU and CU to five suppliers’ radio units, which is more than any other supplier,” he claimed.
Overall, Lundmark believes that open RAN will remain a small part of the market for some time to come, but sees it “more as an opportunity than a threat for Nokia.”