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Summary

At Nokia's December analyst conference, the company's CEO Rajeev Suri said communication service providers’ spending on network gear would decline in 2017 and continue to do so until at least 2019. For a company like Nokia this is obviously not good news. However, Nokia did use the event to outline its plans on how it will navigate through what it expects to be a challenging few years.

Nokia believes four things will help it survive the industry downcycle

Industry downcycles can lead to radical changes in the vendor landscape. Making the wrong bet on a technology, having the wrong industry focus, or not sharpening internal process can all take a vendor from market leader to market extinction. Nokia believes that focusing on the right technology, as well as providing an end-to-end portfolio to go after the entire 5G opportunity, moving into new markets, and offering executional excellence and agility will not only enable it to survive the market downturn, but also to come out of the downcycle stronger than it was when it started.

Focus on the right technology

During his presentation on the first day, Marc Rouanne, Nokia president of mobile networks, said Nokia would only focus on fully standardized 5G. He said that even in the best of times, R&D budgets are limited and downcycles put extra pressure on these budgets, with companies needing to be confident that their investments will pay off. Nokia’s decision here indicates that the company sees commercial limitations with what Verizon is currently trying to achieve with its 5G fixed wireless access network, which is not fully standard-compliant.

End-to-end portfolio to go after the entire 5G opportunity

The 5G network opportunity is much more than radio. It is about transport, network core, and services. Through its acquisition of Alcatel-Lucent, Nokia plays in all these areas. This expands the vendor’s 5G opportunity. Where it might not win a macrocell deal, it could still get part of the operator’s spend on small cells, backhaul, and core network when it comes to 5G.

Move into new markets

Nokia’s portfolio isn’t just for CSPs. Its gear can also provide network solutions in other markets such as utilities, mining, smart cities, and webscale companies. These new verticals may not erase the entire spending decline coming from Nokia’s primary customer base, but should offset it some. The challenge for Nokia is that it will need new partners to reach these verticals, something the vendor acknowledges. Another challenge will be how to balance some of the customization needed to satisfy the verticals while maintaining financial margins.

Offer executional excellence and agility

Unlike many of its competitors, Nokia uses its analyst conferences to educate attendees about how the company operates. Refining its operations to work more efficiently is a critical part of its strategy. This is a positive recognition by the vendor that a superior portfolio alone won’t guarantee success, and that how the company delivers the portfolio is just as important. One recent example of this was its reorganization of the mobile division to create tighter relations between the vendor and its customers along with creating greater agility and responsiveness on the vendor’s part. The risk here for Nokia is to make sure its tighter customer focus doesn’t ruin its cohesiveness. It could find that the desire to be responsive to individual customers could distract the mobile team from focusing on the bigger market picture.

Moving through a market downcycle is never easy. To the credit of Nokia, it has not only recognized the downcycle, but it can also articulate the specific steps it is taking to survive the downcycle and come out stronger.

Appendix

Further reading

2018 Trends to Watch: Radio Access Networks, SPT002-000023 (December 2017)

"Nokia says its architecture driven 5G approach is unique," SPT002-00031 (December 2017)

“Nokia is well positioned for FWA”, SPT-002000030 (December 2017)

Author

Daryl Schoolar, Practice Leader, Next Generation Infrastructure

daryl.schoolar@ovum.com

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