Nokia bets big on enterprise

TBR perspective

Nokia (NYSE: NOK) remains in a state of transition. The company is not only addressing challenges with its 5G New Radio (NR) products but is also contending with business disruption as CSPs increasingly migrate toward a webscale-like, next-generation network architecture, which is prompting Nokia to accelerate and broaden its own internal digital transformation to remain a competitive player. Though management provided assurances that it is addressing its 5G NR issues and that they will be short-lived in nature, the underlying challenges facing Nokia, as well as all incumbent telecom network infrastructure OEMs, remain firmly in place.

TBR believes Nokia’s big bet on enterprise, which includes webscales and other industries such as manufacturing, transportation, utilities and mining as well as the public sector, is timely and critical to ensure the vendor can make the transition from relying on CSPs for the bulk of its revenue to relying on a more diversified mix of customers (CSP and non-CSP) to hedge itself from the prevailing winds of shifting CSP spend while exposing it to adjacent growth opportunities that are aligned with its offerings and capabilities. Currently, CSPs account for around 85% of Nokia’s corporate revenue with Enterprise comprising over 5% and patent licensing fees and other corporate revenue sources contributing the remainder.

Event overview

CEO Rajeev Suri kicked off Nokia’s 2019 Global Analyst Forum by addressing “the good, the bad, and the ugly” issues the company has been contending with, specifically as they pertain to Nokia’s 5G RAN kit and how these issues are impacting the company’s financial performance and investment decisions. Suri’s message reiterated that Nokia’s management is fully aware of the problems and have taken pragmatic and decisive steps to address them, most notably shifting from a field-programmable gate array (FPGA) chipset to a system on a chip (SoC) in its 5G NR. Suri stressed these issues are temporary and that the company’s overarching strategy remains the right approach to grow revenue and margins over the long term. One of the key aspects of that overarching strategy, which was interwoven throughout the event, is that Nokia is doubling down on enterprise.

Suri was succeeded at the event by a mix of Nokia’s other C-level executives as well as a mix of business unit and regional heads, all of whom provided updates on their respective domains and how they are addressing new opportunities in the market. A few representatives from leading CSPs, namely Sprint (NYSE: S), Vodafone (Nasdaq: VOD) and Zain, also presented during the event. The customer presentations confirmed that leading CSPs are focused initially on the consumer use cases of 5G (i.e., enhanced mobile broadband [eMBB] and fixed wireless access) and are taking a wait-and-see approach toward enterprise use cases. This is in alignment with TBR’s broader research on the 5G market, which suggests nontraditional use cases of the network that are enabled by 5G are not imminent and that, aside from eMBB and fixed wireless access, other use cases for 5G will take time to become economically and technologically feasible before being commercially deployed. Though private networks represent a key growth area, TBR notes the vast majority of net-new private cellular network engagements to date are using LTE, not 5G.

Panel, small group and one-on-one sessions were also hosted at the event covering a wide range of topic areas. A demo bazaar was also provided for analysts to see new technology innovations from Nokia in areas such as network slicing, cloud RAN and network automation.

After the event, analysts were treated to an exclusive tour of Nokia’s RAN factory in Oulu to see demonstrations of how private networks can be utilized in manufacturing environments to achieve improved business outcomes. The tour was well received and thought-provoking, but it was apparent that 5G technology is not imminently ready to address operations transformation and that more work needs to be done in that arena before the technology is commercially ready.

Enterprise was in the spotlight at Nokia’s 2019 Global Analyst Forum. Though communication service provider (CSP)-centric topics were also widely covered at the event, enterprise and the opportunity to sell private networks to that customer segment were emphasized throughout, indicating Nokia is placing big bets on non-CSP customers to drive the vendor’s recovery and next phase of growth.