Nokia shares dropped 20% this week, after a giant cut in profit forecasts, due to intense 5G competition and the need to boost investment in 5G capability. This completely overshadowed Nokia’s strong third quarter results.
Nokia’s strategy is positioning them early for the real 5G fight
Appledore believe that Nokia is acknowledging, earlier than the others, that 5G is going to have a slower roll out and be more cost competitive than previous wireless generations. For too long the technology hype about 5G (enabling driverless cars and many other new use cases) has hidden the lack of immediate business models to support this and CSPs willingness to invest in them. For now, major new revenues from new 5G use cases remain a long way in the future.
Ultimately, we believe this announcement is a positive development for 5G.
Appledore believe in the longer term 5G will have a bigger spend than LTE, maybe much bigger. However, the industry now needs to focus at the real and immediate use cases for 5G: enhancing existing mobile broadband and enabling fixed wireless access, as an alternative to fibre access. These are both mature competitive environments, with little evidence that consumers are willing to pay more for these services. CSPs and their key suppliers, like Nokia, will need to be focused at anything that reduces the CAPEX and OPEX of implementing and running 5G. Nokia’s announcement acknowledges the battle for 5G will be based on price and on investment, particularly in features that directly impact operational cost and profitability.
Supplier 5G success will depend on sober analysis and matching revenues to costs wisely.
Appledore has written extensively on the challenges for 5G, most recently in our report 5G – After the Technology Hype Fades; Preparing for Profitability. See also our recent LinkedIn post on these results.