Nokia’s Suri resigns after indifferent results feeds doubts over strategy

• Rumours of asset disposals swirl 
• Report claims Finnish vendor has brought in advisors to explore options
• But those options look limited given the decades of vendor consolidation

It may be one of those rare instances when the official story of a dignified departure, after working hard and achieving much but, in the end, unable to spark the sort of revival required, probably holds true. 

Nokia has announced that Rajeev Suri is to step down after more than a decade as President and CEO of Nokia and Nokia Siemens Networks. In his place the company has already appointed Pekka Lundmark, a one-time Nokia insider (as are many of Finland’s managerial elite) currently heading up leading Finnish energy company, Fortum. 

So Lundmark comes with a Nokia background and a perspective enriched by recent experience in an adjacent industry.  

For his part Suri says he has been mulling a move for some time: “After 25 years at Nokia, I have wanted to do something different,” the press release has him saying. 

There‘s an extended handover: Lundmark won’t take up his post until September this year and Suri will  continue as an advisor to the Nokia Board until January 1, 2021. 

Despite all the usual warm words delivered in Suri’s direction by Nokia’s board, there’s no denying that promises he’s made over performance have not panned out. 

Nokia appears to have hit a rough patch. Over the course of 2019 it  lost about a third of its total share price value and had slashed its market outlook to ‘flat’. 

On the other hand it has most recently announced that it’s signed 15 commercial 5G contracts during the last quarter of 2019,  making 66 5G deals in total. 

Sources cited by Bloomberg claim the Finnish vendor has hired advisers to help it explore the above options, as well as shifting investments and making balance sheet adjustments. The usual caveats were given: deliberations are ongoing and might not lead to any transactions.

If accurate, the report should come as a worrying development for operators, which have seen the mobile network vendor market slowly but steadily consolidate over the last couple of decades until now only three big players, and a few smaller ones, remain.

Fewer suppliers equals less competition, which means potentially higher equipment prices for telcos.

Nokia shares listed in New York have lost around a third of their value over the last 12 months. In late October, the company suspended Q3 and Q4 dividend payments and cut its profit outlook for 2020. At the time, it blamed its misfortune on higher costs and intense competition.

Nokia's options for a merger or outright sale to a rival are probably quite limited. It is highly likely that antitrust regulators would intervene in the event it wanted to merge with Ericsson. There is no chance a tie-up with Huawei would ever happen.

Even though the line between IT and telecoms continues to blur, the well-documented travails of Ericsson and Cisco's deep and meaningful strategic partnership might make Nokia reluctant to tie up with an IT networking vendor, like Juniper Networks, for instance.

Recent comments from US Attorney General William Barr that his government should consider investing in Ericsson or Nokia barely merit a mention due to their ignorance of pretty much everything.

While hyperscalers are keen to ensure their clouds are within quick and easy reach of as many people and enterprises as possible – plus some of them aren't afraid to splash a bit of cash – it is highly unlikely that any of them have the appetite to get into the telco networking market. The one exception might be Facebook, which is pushing for structural changes to the telco networking landscape via the Telecom Infra Project (TIP), but that is still a very, very long shot.

Then there are potential asset sales.

In the year leading up to its buyout of Siemens from what was then known as Nokia Siemens Networks, Nokia restructured and slimmed down to concentrate specifically on mobile broadband, offloading its fixed access, BSS and transport assets.

It fattened back up again with 2015's acquisition of Alcatel-Lucent, but the integration that followed looked for all the world to have gone very smoothly. Nokia CEO Rajeev Suri insisted at the time that the newly-acquired fixed access, BSS and transport assets were of a scale needed to be profitable.

Nokia's software unit has had its ups and downs, and perhaps it is in this area where Nokia might look to make some changes. However, it is hard to see how divestments would have a meaningful affect on the company's overall performance, given that it generates a relatively small proportion of total revenue. Meanwhile, Nokia's patent-licensing division is ticking along quite nicely and is fairly low maintenance.

Indeed, macro trends seem to be weighing on Nokia's performance rather than any obviously underperforming areas of business. Growth in Greater China has stalled; the protracted T-Mobile/Sprint tie-up has caused issues in North America; and 4G spending is on the wane.

In short, it is hard to see where Nokia and it's new CEO (after August) can go to turn things around.