Shares in Nokia took a significant hit, plunging as much as 10% in Helsinki trade, after AT&T chose its Swedish competitor, Ericsson, to modernize its U.S. telecoms network with a hefty $14 billion contract. This decision has prompted concerns among analysts who suggest that Nokia may be compelled to split off certain parts of its business. These parts could potentially be better managed by local players who are more adept at navigating the vast U.S. market. Danske Bank analyst Sami Sarkamies warns of a possible break-up of Nokia or an acquisition of its Mobile Networks division by a U.S. industrial buyer who possesses the necessary skills and rapport with local customers.
Sarkamies asserts that the decision did not solely hinge on minute product features, such as fan-based cooling, but rather on higher-level relationships and corporate image. He suggests that interpersonal relations within Nokia and AT&T likely influenced the latter’s choice of Ericsson over Nokia. As a result, Sarkamies believes a shakeup of Nokia’s board is inevitable.
Nokia expects AT&T’s decision to delay its efforts to achieve double-digit operating margins in its mobile networks business by two years. Sales to AT&T have accounted for a significant portion (5% to 8%) of the division’s revenues so far in 2023. However, Nokia plans to partially offset the impacts of this setback through cost-cutting measures announced in October. The company aims to reduce its global workforce from 86,000 employees to 9,000 to 14,000 by 2026.
This latest blow has sent Nokia’s share price tumbling by 9%, contributing to a total drop of 42% over the past year. In contrast, shares in Ericsson saw a 5% increase on Tuesday, although they had experienced a decline of 14% in the previous year.
AT&T’s Open Source Push to Boost Competition in Telecom Sector
AT&T’s recent initiative to adopt open source infrastructure is set to bring increased competition to the telecom sector by allowing access to companies without proprietary technology. By 2026, AT&T plans to operate 70% of its wireless network traffic using open source platforms.
The shift towards open source technology will also intensify the rivalry among suppliers in the highly lucrative U.S. market, which currently holds the top spot in the global telecommunications industry. As the biggest spender in the U.S. market, AT&T’s decision has significant implications.
Citi analyst Andrew Gardiner highlighted that the contract with AT&T provides Ericsson with a substantial advantage as the Swedish company becomes “the first truly global vendor to deploy open RAN with a major operator into an existing network.” This positions Ericsson ahead of its competitors.
Gardiner further commented on Nokia’s recent challenges stating, “Nokia had been the dominant player in the RAN market for the past two years, but experienced a decline in market share when it lost ground at Verizon in 2019. Losing another major customer in North America, especially considering Nokia’s history in that market, is a significant setback.”
On December 12, Nokia had already scheduled a progress upgrade, which now takes on even greater importance due to the loss of a major customer in the mobile sector, according to Gardiner.
Societe Generale analyst Alek Peterc emphasized the significance of Ericsson’s victory, saying, “This win is highly significant for Ericsson and a major loss for Nokia. We can expect a continuation of sell-off for Nokia shares and a re-rating for Ericsson shares, which started when news of this development emerged.”
Peterc also pointed out that the decision made by AT&T was not related to the quality of Nokia’s products or solutions but cautioned that it was yet another setback for Nokia in the crucial and highly-profitable U.S. market, following the loss of 5G business to Samsung at Verizon.
Overall, AT&T’s adoption of open source infrastructure represents a major opportunity for companies vying for a share in the telecom sector. With rivals like Ericsson positioned as first movers, Nokia faces a formidable challenge in the U.S. market.
