Is a financially driven, and not technology driven decision, Nokia CEO

AT&T’s decision to forsake Nokia in favor of rival Ericsson for the carrier’s initial open radio access network (RAN) deployment overshadowed Nokia’s year-ending “progress update,” a decision by the carrier that Nokia CEO Pekka Lundmark said was “financially driven” and not tied to equipment performance.

“I’m glad that this decision was not because of our performance, because of our technology or the performance of our services,” Lundmark said early in the multi-hour event held at Nokia’s Helsinki, Finland, headquarters. “Our understanding is that since these are not the reasons and it was not relationship either, it is mostly financially driven.”

Tommi Uitto, president of mobile networks, later in the event went further in answering a question by clarifying the specific financial reason behind the decision. “The reasons of AT&T’s decision are very specific to AT&T, like Pekka said: financial. You said price but I would say financial,” Uitto said.

While both executives pointed to a monetary reason for AT&T’s decision, Uitto also threw in some other reasons.

He downplayed the seeming surprise nature of AT&T’s decision by stating Ericsson already had two-thirds of the carrier’s infrastructure business, compared to just one-third for Nokia. “We all know that the U.S. still has way to go in 5G and if an operator concludes that they have to go single supplier then with that split what do you think’s going to happen?,” Uitto said.

Uitto also spread some of the possible blame to Nokia’s history of acquiring competitors to battle new market entrants from China. This included company-altering and sometimes name-altering acquisitions of Siemens, Motorola, Alcatel-Lucent, Panasonic and Nortel.

“We have been the consolidator because of the new competition that came from Huawei and ZTE, and not always completely symmetric and fair, but OK, life is not fair,” Uitto said.

Nokia’s financial hit
Nokia is only half-way through a five-year deal it signed with AT&T, which provides the vendor with ongoing access to the carrier’s infrastructure-building interests. This includes microwave radio links, femtocell access points and cell-booster components.

“Of course, the biggest part of the business is macro RAN,” Uitto said, adding that it was also too early to comment on any potential negotiations toward a new contract.

Lundmark did note that while “losing the AT&T deal hurts,” the vendor just this week scored a new deal with Germany’s Deutsche Telekom to provide open RAN equipment as part of that carrier’s ongoing multivendor deployment.

“[That’s] a significant return to a network that is the largest in Europe and that we have been out of since 2017,” Lundmark said.

Lundmark also downplayed the overall financial impact AT&T’s decision would have on Nokia, stating the carrier accounted for only a single-digit percentage of its 2023 sales, but the executive is instituting new cost-cutting measures to counter the financial drag. This includes slashing costs so that Nokia’s Mobile Networks division can maintain previously announced margin goals with $1.6 billion less in sales revenues.

“It is pretty straightforward math when you take those margin targets targets and then certain volume assumptions, and we believe that it is entirely doable,” Lundmark said. “But, of course, it would not be possible without the cost-cutting actions that we are taking.”

Nokia is also banking – literally – on a broader market turnaround. Lundmark said that the vendor is starting to see sales progress during the final quarter of the year.

“We said that with our Q3 results that the outlook for net sales remained challenging, but that we were starting to see some early signs that we could see improving order in tech trends,” Lundmark said. “And as it now seems in [network infrastructure], it actually seems to be true that Q3 was the low point in orders. And now we are seeing clear improvement in orders in the fourth quarter exactly as we were expecting after Q3. Of course, there is then a cycle from orders to delivery, a couple of quarters some cases – even three quarters, so it will take time before all of this will come through in top line but it currently looks promising and we do expect to see our [network infrastructure] business return to growth in 2024.”

ESG remains a focus
Despite Nokia’s financial juggling, Lundmark used the event to highlight the continued importance of the industry’s environmental, social and governance (ESG) focus. Some have started to question the financial impact this focus might have on the ecosystem at a time when many vendors are facing slowing sales.

“I just want to highlight one thing because sometimes we receive questions that is ESG something that you should be focusing on as your strategic cornerstone? Is that good for shareholders? Good for the world?,” Lundmark said. “Well, certainly it’s good for the world, but I’m suggesting that it is also good for shareholders. And the evidence of that is that currently about 20% of our customer’s typical scorecard when they make their vendor decision is attached to ESG scores, about 20% of customer decision-making criteria. So it is real.”

Other vendors have called out this anti-ESG phenomenon. SDX Central