Financial Times UK - 03.03.2020

Tuesday 3 March 2020 ★ FINANCIAL TIMES 15

COMPANIES

Worldwide telecom

equipment sales

Revenue share ()

Sources: Refinitiv; Dell’Oro Group









     

Huawei

Nokia

Ericsson

ZTE

Cisco

Equipment includes broadband access,

microwave and optical transport, mobile core

network and radio access network, SP router

and CE switch

Nokia has struggled

to convince investors

over its network strategy

Share prices (rebased)













   

Nokia

Ericsson

R I C H A R D M I L N E— OSLO
N I C F I L D E S— LONDON

Nokiapresented its change of chief
executive yesterday as “orderly succes-
sionplanning”.
But in recent months there has been
growing unrest among investors and
some managers at the Finnish group as
it has failed to establish a dominant
position in the rollout of 5G mobile net-
works across the world — even with the
US leaning on its allies to drop a major
rival,China’sHuawei.
“5G is a ten-lap event, but in the first
two laps Nokia hasn’t done very well,”
said one former senior executive.
“There’s a need to get a leadership that
hasabettergriponhowtoexecute.”
Nokia has struggled to convince
shareholders it is winning against its
main competitors, Sweden’sEricsson
andHuawei.
Thatisdespitethegroup’searliercon-
fidence that it was well placed to benefit
from the development of ultrafast
broadband networks following its 2015
acquisition of Alcatel-Lucent, a deal
which created a telecoms equipment
powerhouse spanning both 5G and
broadbandequipment.
Over the past year, Huawei has been
forced to fight a rearguard action during
efforts by the Trump administration to
shut the Chinese company out of west-
ern markets, which has led to some
countries banning use of its equipment
andothers,liketheUK,restrictingit.

Meanwhile, Ericsson suffered a repu-

tational blow after paying more than

$1bn to settle US criminal and civil

investigations into historic foreign cor-

ruptionallegations.

Yet it is Nokia, whose shares fell by

more than a third over the course of

2019, that has struggled the most due to

an inconsistent performance and issues

with the quality of its products. In Octo-

ber the group suspended its dividend

and cut earnings forecasts, blaming

fiercecompetitionandthecostofrolling

out5Gnetworks.

The result is thatRajeev Suri, chief

executive since 2014, is to be replaced

byPekka Lundmark, who started his

career in the networks business of the

Finnish company during its glory years

in the 1990s and early 2000s before

leaving to head machinery maker

KonecranesandthenutilityFortum.

It will also mark a new tie-up for Mr

Lundmark with former Nokia exec-

utiveSari Baldauf, who will

become chair of the telecoms

equipment group next month

and who recruited him to For-

tumfiveyearsago.

She praised his “strong analyti-

cal” experience and focus on both

strategy and investor value at

apressconferenceatNokia’s

headquarters in Espoo, just

outsideHelsinki.

Mr Lundmark, speaking

in English, Finnish and

Swedish, said: “The Nokia I left [in

2000] is not the Nokia of today, and it

will certainly not be the Nokia of

tomorrow.”

For some in Finland, there might be a

sense of a missed opportunity. Some

investors and managers felt that Mr

Lundmark should have become chief

executive instead of Mr Suri in 2014,

after the company decided to sell its fal-

tering mobile phones business toMicro-

softand instead focus on mobile net-

workequipment.

“Pekka was one of the great promises

of Nokia. There was a lot of question

marks over Rajeev’s appointment,” said

oneformermanager.

Mr Suri’s tenure has been character-

ised by a series of deals that remade the

company. As head of its telecoms equip-

ment business, he spearheaded a buy-

out of its network gear joint venture

withSiemenswhile as chief executive

he led the €16bn purchase of French

groupAlcatel-Lucent.

Thatdeal,whichcatapultedthegroup

to become the second-largest supplier

in the industry behind Huawei, was ini-

tially regarded as a success in making

Nokia strong in broadband alongside its

historicstrengthofmobile.

But analysts and former executives

argue it sowed the seeds of its current

troubles,addingcomplexityandthedis-

traction of integrating the disparate

businesses of Nokia, Siemens, Alcatel

and Lucent just as the 5G product cycle

burstintolife.

John Delaney, an analyst with IDC,

said the combination of Nokia and Alca-

tel-Lucent created a fundamentally

“sound business” but that the merged

company was now in a “deep trough”

duetooperationalissues.

A former Nokia director added: “The

merger with Alcatel-Lucent was not

done well. There were too many com-

promises,andnotenoughfocusonwhat

doyouneedtodotobealeaderin5G.”

Nokia has also experienced technical

issues with some its 5G equipment,

replacing its head of mobile networks

twiceinthreeyears.

Nokia’s profit warning four months

ago spooked investors but outgoing

chairman Risto Siilasmaa insisted that

thegroupwouldfixmostofitsproblems

as the rollout of 5G gathers pace. “We

believewewillenternextyearinamuch

strongerposition,”headded.

Liberum analyst Janardan Menon has

forecast that it could be 2022 before

Nokia’s revenue growth returns to a

healthylevel.Hesaidthecompanyfaces

a“toughroad”ahead.

Rumours have swirled in recent

months that the US government could

take a stake in the company or

that Nokia could put parts of itself up

for sale. Mr Siilasmaa stressed that

Nokia is not currently examining “stra-

tegic options” but said this could change

when Mr Lundmark takes control in

September.

See Lex

New boss at

Nokia faces

battle to win

over investors

Disquiet has grown over the group’s failure

to secure a leading position in 5G rollout

In a tight spot:

Nokia

suspended its

dividend and

cut its outlook

in October;

below, Pekka

Lundmark,

incoming CEO

Shannon Stapleton/Reuters

‘The Nokia

I left [in

2000] is

not the

Nokia of

today, and it

will

certainly

not be the

Nokia of

tomorrow’

Pekka

Lundmark

MARCH 3 2020 Section:Companies Time: 2/3/2020 - 19: 19 User: timothy.digby Page Name: CONEWS2, Part,Page,Edition: LON, 15 , 1