Summary Bullets:
• One era ended and another began, with new CEO Pekka Lundmark taking the reins August 1.
• While the company faces a host of challenges and questions to address, there are many recent signs of hope.
Nokia began life under its new CEO, Pekka Lundmark, on August 1 following the departure of his predecessor, Rajeev Suri. Lundmark’s appointment had been announced in March; he had originally planned to begin September 1 but the start date accelerated by one month from the original plan.
The appointment of Lundmark to the helm marks the end of what was an impressive 11-year tenure for Suri, who provided steady leadership through a tumultuous period that included the merger of Nokia and Siemens, and after a lengthy integration period, the eventual acquisition of Alcatel-Lucent.
In addition to the fact that Suri had served a remarkably long time and was ready to move on, Lundmark’s appointment as CEO was driven in large part by Nokia’s struggles with profitability. Among its greatest challenges, the company is working feverishly to move away from field programmable gate array (FPGA) processors to system-on-a-chip processors in its 5G radio products in order to bring costs more in line with Nokia’s competitors.
However, Nokia has other challenges as well; the company experienced year-over-year revenue decline across all segments, including the standalone software business it has spent several years building up. The company has had to ramp up its 5G R&D in order to play catch up after its earlier FPGA missteps. And perhaps most concerning, the company’s supremely profitable Technologies unit, which licenses Nokia’s patents and other intellectual property assets, saw a double-digit decline in revenue and operating profit over the past two quarters. Considering the vital role that the Technologies unit has played in backstopping operating losses in Nokia’s Networks unit in the past several years, any decline in revenue from the Technologies unit is a concern.
Still, despite all its challenges, Lundmark joins a company with a lot going for it. A few positives to consider:
• Notwithstanding the well-documented challenges moving to SoC, Nokia is already well underway with the transition. The company expects its “”Powered by ReefShark” SoC products to represent 35% of 5G radio shipments by the end of the year, and all of its 5G products by the end of 2022.
• The company’s IP & Optical Networking (ION) assets, and particularly its IP routing products, continue to enjoy strong industry momentum. Nokia’s introduction of a rich set of data center fabric solutions in July shows the company continues to invest in innovation.
• While the company has clearly lost radio market share in China, it has secured significant 5G wins across radio, core, transport and service domains in a number of markets (including 5G core in China and an apparent 100% 5G win rate outside of China). Meanwhile, growing resistance from many sovereigns is likely to prompt operators to steer clear of Chinese vendors in their upcoming 5G tenders, which should provide an insurance policy of sorts in a market dominated by just a handful of vendors.
• Nokia continues to mine solid growth from non-CSP customers and appears well-poised to move deeper into the enterprise leveraging emerging technologies such as private LTE and private 5G.
What happens now with Nokia will largely be determined by Lundmark’s leadership in the coming months. As Nokia’s rival Ericsson has shown in the past three years, a company’s operating profile can be dramatically improved over a short period with a sound plan and some internal discipline. At the same time, rumors of Nokia’s potential sale have been percolating for the past year. That might explain the decision to have Lundmark start his tenure one month earlier than previously planned.
As he hits the ground running, Lundmark may have a short timeframe in which to make some difficult decisions.