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New Nokia CEO’s To-Do List Includes 5G Tech Upgrades, Possible Divestments

As Nokia Corp. CEO Rajeev Suri departs, his successor is faced with challenges including improving the company’s 5G equipment offering, and the possible divestment of noncore assets, analysts said.

Suri will leave the position Aug. 31 after almost six years, the company announced March 2. Finnish energy company Fortum’s CEO Pekka Lundmark will take over Sept. 1.

The change is aimed at restoring investor confidence after Nokia in October cut its outlook and halted its dividend, Dimitris Mavrakis, research director at ABI Research, said in an interview. Since then it has posted “mediocre” financial results, Mavrakis said, and recently said shareholder payouts are unlikely to resume until late this year.

Following Lundmark’s appointment, Morgan Stanley telecoms analysts wrote in a note that Nokia’s technology is in need of “significant improvement” to match its peers’, adding that it needs to further increase its investments in 5G product innovation if it wishes to compete with Ericsson and Huawei Technologies Co. Ltd.

This could mean noncore asset disposals, analysts said.

Nokia’s Nuage Networks unit, which specializes in a type of network management software called SD-WAN, could be spun off or sold, Moor Insights and Strategy analyst Will Townsend said in an interview.

Nuage — acquired by Nokia in 2016 as part of Alcatel Lucent — is facing stiff competition from over 80 vendors including U.S.-based networking firm Cisco, making its “route to market difficult,” Townsend said. It would suit a buyer focused on the enterprise market, he said.

Suri in 2016 said he was excited about Nuage’s prospects, but now “anything is on the table,” according to Mavrakis.

In response to media speculation about a merger with Ericsson, Nokia’s board chair Risto Siilasmaa said, “We are not evaluating such strategic options at the moment.”

“The new CEO, after coming in, will do his normal review of our strategy and may then propose changes to the board, but at the moment we have no such actions underway,” Siilasmaa said. Nokia declined to comment further when contacted by S&P Global.

Suri has begun making changes to Nokia’s 5G technology. The company said on its third quarter earnings call that its 5G profit margins were impacted by the high cost of its “Reefshark” chip found inside its network antennas.

Suri attributed this to its use a field programmable array, or FPGA, silicon, which he said was more flexibility and quicker to produce, but was also more costly. Nokia has opted to replace FPGA with system-on-a-chip based products, hiring roughly 350 employees in Finland last year to speed up its 5G silicon output.

Nokia’s success in improving its 5G equipment offering will be judged on whether it can deliver more equipment housing this cheaper-to-produce chip, Raymond James analysts wrote in a note.

Suri promised to start shipments during 2020. Morgan Stanley analysts estimate Nokia may not be able to deliver upgrades until the end of the year.

―CT Bureau

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