Nokia’s president CEO signaled rough waters ahead for the network equipment manufacturer, saying that despite “making good progress in many parts” of its business, “more change is needed” to counteract market share losses that it is seeing during the transition to 5G networks.
“The good progress we have made is not enough,” said Pekka Lundmark in a statement on the company’s third quarter results. “Our financial performance in 2021 is expected to be challenging, and more change is needed. We have lost share at one large North American customer, see some margin pressure in that market, and believe we need to further increase R&D investments to ensure leadership in 5G. In fact, we have decided we will invest whatever it takes to win in 5G.”
Samsung won a significant portion of Verizon’s 5G network contracts announced earlier this year, crowding Nokia’s share of that work.
Nokia’s sales were down 7% year-over-year (a drop of 3% when currency differences were factored in), primarily due to service losses in its mobile access segment. The company also said that it saw a 200 million Euro impact on sales from pandemic-related closures of its factories during the first nine months of the year, although it added that its factories are no longer closed and it expects most of those sales to be delayed rather than lost. COVID-19 is expected to have a temporary, 250 million Euro positive impact on the company’s full-year results due to lower operational costs related to travel and personnel.
Outside of services within Mobile Access, Nokia said that it generally saw improvements in performance of its Mobile Access and Optical Networks segments. It also called out strength within its enterprise group, but an overall lowering of its guidance — although the new numbers are still within the previous range — sent its stock plunging nearly 20% as investors reacted.
Lundmark said that Nokia hopes to “stabilize” its financial performance in 2021 and deliver “progressive improvement” after that.
Accompanying its results, the vendor announced changes to its organizational structure, doing away with an end-to-end approach and creating four new business groups that the company aims to make leaders in their respective segments. The new segments are Mobile Networks, IP and Fixed Networks, Cloud and Network Services and Nokia Technologies, and will take effect as of January 1. In addition to the four business groups, Nokia will also have a Customer Experience unit that will “provide a common interface with customers and will act as the voice of the customer across all business groups,” and will include the company’s customer teams, region and country management and marketing.
“The changes announced today mark a shift from end-to-end as a strategic principle to a more focused approach with each business group having a distinct role in our overall strategy,” Lundmark said. He went on to add that “A more rigorous approach to capital allocation will be key to our strategic direction. As a technology company we will invest to win in those segments where we choose to compete.”
He added that Nokia sees “an opportunity to lead in ‘network-as-a-service’ business models for telecom operators and enterprise customers. This change offers a broad opportunity for Nokia to provide a trusted, software-led and cloud-based network capability that can be rapidly integrated, deployed and self-managed as a complete service, allowing us to move up the value chain and provide additional ‘network-plus’ value-adding services.
“This vision will take time to reality,” Lundmark added, “but Nokia is well positioned to win given our deep experience in delivering carrier-grade network performance and extensive work with webscale companies and enterprises.
“I have no doubt that the potential of Nokia is substantial, even if delivering on that promise will take time,” he said.
