Nokia to sacrifice network margins for growth in 5G

Bloomberg

Nokia Oyj said it expects margins for its networking business to be zero next year as it focuses on “regaining 5G leadership.”
The company will develop its products for so-called Open RAN, a type of architecture that allows operators to use equipment from multiple vendors, and virtual RAN, which can be run as software on generic hardware, Nokia said in a statement.
Pekka Lundmark, who took over as chief executive officer (CEO) in August, is driving a reorganisation at the telecommunications gear maker as the roll out of fifth-generation wireless networks gathers speed. The company said its overall outlook for next year is unchanged and it expects a margin, excluding some items such as restructuring costs, for the entire business of 7% to 10% in 2021.
“Customers are using a best-of-breed approach to build these networks, selecting network elements from multiple individual vendors who are able to offer the best performance per total cost of ownership,” Lundmark said in the statement.
Lundmark already said he’s ready to sacrifice short-term profitability to take share in the 5G market, where Finnish company is losing out on contracts. The company missed out on a deal to provide technology to Verizon Communications earlier this year after the US carrier chose Samsung Electronics Co.
It’s also playing catchup with its technology. After spending years digesting the $18 billion deal for Alcatel Lucent, Nokia was late to produce its own 5G chipsets, forcing it to buy more expensive alternatives and eating into the resources left over to invest in development.

Still, a growing ban on Huawei Technologies Ltd. may provide Nokia’s new CEO an opening to take market share. A trade war between the US and China has contributed to many American allies prohibiting the Shenzhen-based network gear maker from providing technology for their phone networks.
Lundmark’s reorganisation — which is focused on slimming back the businesses to focus on high-value services and moving away from his predecessor’s “end-to-end” strategy of providing complete network systems — will be challenging as it works to overcome share loss and to update its products, analysts at Credit Suisse Group AG wrote this week. At least five senior managers have said they’re leaving Nokia after the first phase of its strategy was announced in late October, creating some “transition risks,” the analysts said.