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Analysis-5G Underdog Nokia is back in the game after Lundmark’s Shakeup | Technology news

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By Subanta Mukherjee and Issey Leto

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STOCKHOLM/HELSINKI (Reuters) – A shift in geopolitics and a sharp round of cost cuts has sent Nokia firmly back into the global 5G race just a year after CEO Pekka Lundmark took over the Finnish company.

Regarded as a 5G underdog after betting on the wrong kind of chips and losing a multibillion-dollar Verizon contract to Samsung, Nokia recently gained ground over arch-rival Ericsson, even as both benefited from US pressure on European governments to crack down on China. Huawei.

Lundmark warned in February of a “difficult” transition year with “meaningful headwinds,” but two good quarters have revived hopes for a turnaround, and Nokia said earlier this month it would raise its full-year forecast when it announced second-quarter results. Thursday.

“The drastic changes and improved performance under Beca’s direction are clearly visible,” said Paulo Pescatore, analyst at BP Foresight. “The opportunities in 5G, the misfortunes of others, and the focus on key products have helped reignite the business.”

Lundmark, who became CEO last August, has laid off thousands of employees and forged new partnerships with tech companies after pledging to “do whatever it takes” to take the lead in 5G.

Nokia has also invested heavily in its Reefshark chipset, lowering the final cost of its 5G equipment, and giving its business units more autonomy over where they choose to compete.

While the reform is paying off, the geopolitical background has shifted more in Nokia’s favour.

European governments have long tightened their controls on Chinese companies’ role in 5G networks after diplomatic pressure from Washington, which claims Beijing may use Huawei equipment for spying. Huawei has repeatedly denied that it poses a national security risk.

While Nokia and Ericsson have both gained customers who might otherwise have gone to Huawei, Ericsson has been doing better with winning big contracts in China, where next-generation network deployment is in full swing.

But its business in China has been dealt a mutual blow since Sweden late last year banned Chinese companies from supplying critical 5G network equipment.

In the second phase of 5G rollout by China Mobile last week, Ericsson’s 5G wireless share fell from more than 11% to around 2%, and Nokia secured the first Chinese 5G deal with a 4% share of a $6 billion contract, according to sources.

It is also expected to win a portion of the coming contracts from China Unicom and China Telecom at Ericsson’s expense, having failed to make any headway in the world’s largest 5G market last year.

“The key was taking the right steps to correct the actions that really pushed them beyond 5G,” said Mark Cash, an analyst at Morningstar. “I think Becca’s imprint has already been felt by the organization, and he’s clearly doing well.”

Nokia shares have gained about 30% in the past year, while Ericsson’s shares have gained just 2% over the same period.

Company insiders say Lundmark’s working relationship with company president Sari Balduff helped stabilize the ship when several senior executives left the company during a cabinet reshuffle in the early months of his tenure, gaining him broader support for Nokia’s overhaul.

The pair have a long history of working together, recently including the same roles on Fortum.

While Nokia, Ericsson and Huawei are currently the only companies to offer full 5G wireless networks, the US government is now promoting a new and more open approach, allowing mobile operators to mix and match equipment from different suppliers and potentially securing US companies a greater market share.

However, China is still far ahead of other countries for 5G deployment – China Mobile has held nearly 500,000 base stations for more than all 5G base stations currently in Europe – with increased competition and lower overall costs.

Nokia may neutralize Ericsson’s current hurdles in the country as Huawei said a law approved by Finland allowing authorities to ban telecoms equipment on national security grounds is a more realistic approach than focusing on specific vendors.

But some analysts warn that the presence in China could negatively affect Nokia’s margins and any new geopolitical conflicts lead to significant losses.

Kimmo Stenvall, an analyst from OP Markets, said the updated forecast for Nokia is likely to take into account a global chip shortage with not enough semiconductors.

(Reporting by Suvantha Mukherjee in Stockholm and Essie Leto in Helsinki; Editing by Kirsten Donovan)

Copyright 2021 Thomson Reuters.


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