Nokia Firmly Back in Global 5G Rollout Race After CEO Pekka Lundmark's Shakeup: An Analysis

Lundmark in February warned of a "challenging" year of transition with "meaningful headwinds."

By Reuters | Updated: 27 July 2021 17:03 IST

Nokia Firmly Back in Global 5G Rollout Race After CEO Pekka Lundmark's Shakeup: An Analysis

Photo Credit: Reuters

Nokia's shares have gained around 30 percent in the last year

Highlights

Nokia has also invested significantly in its Reefshark chipset
Huawei has repeatedly denied being a national security risk
Nokia, Ericsson have a long history of working together

Shifting geopolitics and a sharp round of cost cutting have put Nokia firmly back in the global 5G rollout race just a year after CEO Pekka Lundmark took the reins at the Finnish company.

Considered a 5G underdog after betting on the wrong type of chips and losing a multi-billion Verizon contract to Samsung, Nokia has more recently been gaining ground on arch-rival Ericsson, even as both benefit from US pressure on European governments to crackdown on China's Huawei.

Lundmark in February warned of a "challenging" year of transition with "meaningful headwinds", but two good quarters have rekindled hopes of a turnaround and Nokia said earlier this month that it will raise its full-year outlook when it reports second-quarter results on Thursday.

Nokia 110 4G Feature Phone With HD Calling Launched in India

"The drastic changes and improved performance under Pekka's stewardship is clearly evident," said Paolo Pescatore, an analyst at PP Foresight. "Opportunities in 5G, misfortunes of others and 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 technology companies after pledging to "do whatever it takes" to take the lead in 5G.

Nokia has also invested significantly in its Reefshark chipset, cutting the end cost of its 5G equipment, and given its business units more autonomy over where they choose to compete.

Nokia XR20 First Look May Have Appeared Officially Ahead of Launch

The right moves

As the overhaul bears fruit, the geopolitical backdrop has shifted further in Nokia's favour.

European governments have long been tightening controls on the role of Chinese companies in 5G networks following diplomatic pressure from Washington, which alleges Huawei equipment could be used by Beijing for spying. Huawei has repeatedly denied being a national security risk.

While both Nokia and Ericsson have been gaining customers that might otherwise have gone to Huawei, Ericsson had been faring better with big contract wins in China, where the deployment of the next-generation network is in full swing.

But its China business has taken a tit-for-tat hit since Sweden late last year banned Chinese companies from supplying critical 5G network equipment.

In a second phase of 5G deployment by China Mobile last week, Ericsson's 5G radio share dropped from over 11 percent to about 2 percent, and Nokia got its first Chinese 5G deal with a 4 percent share of a $6 billion (roughly Rs. 44,685) contract, according to sources.

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

"The key was making the right moves to correct the actions that really got them behind 5G," said Mark Cash, an analyst with Morningstar. "I think Pekka's imprint is being felt already by the organisation, and he's obviously doing well."

Nokia's shares have gained around 30 percent in the last year, while Ericsson's are up just 2 percent over the same period.

Company insiders say Lundmark's working relationship with Chairwoman Sari Baldauf helped steady the ship when several top executives left the company during a reshuffle in the first months of his tenure, and is gaining him wider support for the overhaul of Nokia.

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

Geopolitical tussles

It may not all be plain sailing.

While Nokia, Ericsson and Huawei are currently the only companies providing complete 5G wireless networks, the US government for one is now touting a new, more open approach, allowing mobile operators to mix and match equipment from various suppliers and potentially securing US companies a bigger share of the market.

China, however, remains far ahead of other countries for 5G deployment - the China Mobile contract for about 500,000 base stations was for more than all the 5G base stations currently in Europe - with competition driving volume and lowering overall costs.

Nokia may swerve Ericsson's current hurdles in the country as Huawei has said that a law approved by Finland allowing authorities to ban telecom equipment for national security reasons is a more realistic approach than focusing on specific vendors.

But some analysts caution that being in China could drag on Nokia's margins and any new geopolitical tussles lead to significant losses.

Kimmo Stenvall, an analyst from OP Markets, also said that Nokia's updated outlook would likely take into account the global chip shortage with not enough semiconductors to go around.

Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.