Nokia is forecasting a revenue “dip” of 2.2 per cent in 2017 in its main telco market, but CEO Rajeev Suri believes modest growth will return in 2018 and is confident the company will outperform “crisis”-hit rival Ericsson.
Suri said he is confident growth will return because the gap between demand for network capacity and supply will become unsustainable.
Suri said someone is going to come in to fill that gap, which could be traditional telcos, new entrants, big internet companies or governments. “Access to connectivity has simply become too important to individuals and institutions for networks not to get some, if not all, of their needed investments.”
Speaking at the company’s first Capital Markets Day in two years, Suri acknowledged there is considerable anxiety about market conditions. “We see challenges this year and next in our primary market of communication service providers. But there must be a return to growth.”
Suri warned markets for networks equipment next year would decline in Europe, Greater China and Latin America, while remaining flat in North America, Middle East Africa and Asia, outside China. Over the next five years, the company expects a rebound in several regions, although growth will remain flat in Europe and decline in Greater China.
He expects overall modest growth in the medium to short term because the networks of today can’t meet the performance requirements of the future. “Yes, more will be needed, but also better. Networks will need low latency necessary for industrial automation and to be more efficient and agile.”
The industry doesn’t have to wait for 5G technology to address this need, he said, noting its 4.9G gear will be available around the end of 2017 (as revealed by Mobile World Live earlier this year).
Topline declines in recent quarters were attributed to two short-term factors. “Alcatel-Lucent pulled in massive software licensing sales in Q4 2015, which were initially planned for 2016. The impact of this was hundreds of millions of euros and created a meaningful hole in our annual plan that has been difficult to fill. Second, the speed of migrating to a single portfolio on mobile networks has caused some near-term purchasing delays.”
When combined with current market conditions and during a large, complex integration, he said they have proven to “be challenging in the near term. But we know these won’t last forever and there is light at the end of the tunnel. Nokia sees a primary market that is expected to return to growth in 2018.”
He is confident Nokia is positioned to grow faster than the market. “Let me be clear. Nokia is not Ericsson. They are in crisis. We outperform them in pretty much every area. Look no further than the third quarter to see the stark differences.”
Nokia reported uninspiring Q3 results last month, with Suri noting “market conditions that are softer than expected, particularly in mobile infrastructure” but Ericsson reported a slump in sales and profits, marking the vendor’s first loss in four years. Ericsson interim CEO Jan Frykhammar forecast last week that the mobile infrastructure market is set to fall 10-15 per cent this year and by 2-6 per cent in 2017.
Four priority areas
Suri outlined Nokia’s strategy, which builds upon its expanded portfolio following the Alcatel-Lucent acquisition, to deliver higher returns by expanding network sales to select vertical markets requiring high-performing, secure networks. It is targeting five verticals: energy, transportation, the public sector, technological extra-large enterprises and web-scale firms.
The CEO said that while it aims to continue to lead in high-performance, end-to-end networks with telcos, it also plans to build a standalone software business by moving beyond its current product-attached software model. “We’re looking to create a software business with the margin profile of large software companies, focused on areas including enterprise software and IoT platforms.”
Its fourth focus area is to expand its licensing revenue by moving into areas like automotive, consumer electronics and IoT. It wants to build new revenue streams from technology and brand licensing, and establish new businesses in digital media and digital health, he said.
Suri reiterated that the company remains focused on executing its planned cost saving programme of €1.2 billion.