Nokia is firmly back in the global 5G rollout race after CEO Pekka Lundmark reshuffle: an analysis

Changing geopolitics and a sharp cut in costs allowed Nokia to return firmly to the global race to roll out 5G just a year after CEO Pekka Lundmark took over the reins of the Finnish company.

Considered a 5G underdog after betting on the wrong type of chips and losing several billion Verizon contract to Samsung, Nokia has recently gained ground over arch rival Ericsson, even as the two benefit from US pressure on European governments to crack down Huawei.

Lundmark in February warned of a “difficult” transition year with “significant headwinds”, but two good quarters rekindled hopes of a turnaround and Nokia said earlier this month it would hike its outlook for the full year when it releases its second quarter results on Thursday.

“The drastic changes and improved performance under Pekka’s leadership are clearly evident,” said Paolo Pescatore, analyst at PP Foresight. “The opportunities of 5G, the plight of others and the focus on key products have helped revive the company.”

Lundmark, who became CEO last August, 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 significantly in its Reefshark chipset, lowering the end cost of its 5G equipment and giving its business units more autonomy over where they choose to compete.

The right moves

While the overhaul is bearing fruit, the geopolitical context has shifted further in Nokia’s favor.

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

While Nokia and Ericsson have won customers who could have turned to Huawei, Ericsson has fared better with large contracts in China, where the deployment of the next-generation network is in full swing.

But its business in China has been hit hard since Sweden banned Chinese companies late last year from supplying essential 5G networking equipment.

In a second phase of China Mobile’s 5G rollout last week, Ericsson’s 5G radio share rose from over 11% to around 2%, and Nokia secured its first Chinese 5G deal with a share of 4% out of $ 6 billion (around Rs. 44,685). contract, according to sources.

He should also win part of the next contracts of China Unicom and China Telecom to the detriment of Ericsson, which failed to advance in the world’s largest 5G market last year.

“The key was to make the right decisions to correct the stocks that really pushed them to support 5G,” said Mark Cash, analyst at Morningstar. “I think Pekka’s mark is already being felt by the organization, and he’s obviously doing well.”

Nokia shares have gained around 30 percent over the past year, while Ericsson shares have only risen 2 percent over the same period.

Company insiders say Lundmark’s working relationship with President Sari Baldauf helped stabilize the ship when several senior executives left the company in a reshuffle in the first few months of his tenure, and he has garnered wider support for the Nokia overhaul.

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

Geopolitical quarrels

It may not all be easy.

While Nokia, Ericsson and Huawei are currently the only companies to provide full 5G wireless networks, the US government, for its part, is touting a new, more open approach, allowing mobile operators to mix and match equipment from various suppliers and potentially secure US companies market share.

China, however, remains far ahead of other countries in rolling out 5G – the China Mobile contract for around 500,000 base stations was for more than all 5G base stations currently in Europe – with competition increasing volume and reducing overall costs.

Nokia could bypass Ericsson’s current hurdles in the country, as Huawei has said that a Finnish-approved law allowing authorities to ban telecommunications equipment on national security grounds is a more realistic approach than focusing on specific suppliers.

But some analysts warn that being in China could weigh on Nokia’s margins and that any further geopolitical struggle would result in significant losses.

OP Markets analyst Kimmo Stenvall also said Nokia’s updated outlook would likely take into account the global chip shortage with not enough semiconductors for everyone.

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