Telecom equipment giants Nokia, Ericsson and Huawei are racing to cash in on 5G wireless network deployments worldwide. U.S. Attorney General William Barr said this month the United States and its allies should consider investing in Nokia and Ericsson to counter Huawei’s dominance in 5G technology, fueling speculation of M&A activities, Reuters notes. More recently, U.S. officials have downplayed potential such investment scenarios.
Amid the 5G market hype, Nokia has struggled to generate growth in its traditional telecom equipment business. In October 2019, the company slashed its 2019 and 2020 profit outlook and halted dividend payouts, saying profits would come under pressure as the company increased investments in 5G technology, Reuters notes.
Nokia’s Business Performance: CEO Rajeev Suri’s Perspective
Nokia’s stock has fallen roughly 33 percent over the past year before rallying a bit on Thursday on the M&A speculation. The company’s net sales were flat in Q4 2019 vs. Q4 2018. President and CEO Rajeev Suri believes those Q4 results were a “strong end to a challenging year,” according to a February 2020 statement.
Nokia President and CEO Rajeev Suri says Q4 2019 showed progress
Recapping Q4 2019 in that February 2020 earnings release, Suri stated:
“We saw strength in many parts of our business in the quarter, delivered a slightly better operating profit than the same period in 2018, generated solid free cash flow, and increased our net cash balance to EUR 1.7 billion.
When I look at Nokia’s full-year 2019 performance, we saw good progress in our strategic focus areas of enterprise and software. Nokia Enterprise delivered exceedingly well on its target of double-digit sales growth, considerably outpacing the market. Nokia Software showed its long-term promise, with exceptional profitability expansion compared to 2018. In addition, IP Routing continued its remarkable momentum, gaining significant share and increasing profitability in a difficult market; and Nokia Technologies continued to generate robust profitability.
We recognize, however, that we have faced challenges in Mobile Access and in cash generation. We will have a sharp focus on these two areas over the course of 2020, which we believe to be a year of progressive improvement as the actions we have underway start to deliver results. In Mobile Access, we expect improvements to be driven by increasing shipments of our “5G Powered by ReefShark” portfolio; product cost reductions; better commercial management; and strengthened operational performance in services.”
Nokia’s Fall From Grace: Don’t Blame Apple, Google, Samsung
Nokia was once the leading provider of cell phones, but that business collapsed amid the rise of smartphones from Apple, Samsung and the Google Android ecosystem. Nokia’s problems started even before smartphones burst onto the scene a decade ago, according to the book Ringtone — which traces the rise and fall of Nokia in mobile phones.
Microsoft, under former CEO Steve Ballmer, acquired the Nokia handset business in 2013. It was one of the decade’s worst technology business acquisitions. Current Microsoft CEO Satya Nadella abandoned that effort, doubled down on cloud services, and further embraced open source to capitalize on the on-demand, software subscription era.
Meanwhile, Nokia’s ownership fate is particularly important to the United States — which continues to express privacy and security concerns about Huawei’s equipment. Huawei has dismissed such concerns as unfounded.