Nokia Partners Intel for '5G Powered by ReefShark' Portfolio

On Mar 5, Nokia Corp. NOK announced that it has partnered with Intel INTC on technology advancements for its 5G radio portfolio, in an effort to accelerate its sluggish shift to 5G. The announcement came a day after the Finnish firm announced a similar collaboration with Marvell Technology MRVL to develop customized 5G radio access system-on-chips (SoCs).

Nokia and Intel have worked closely on the new Intel Atom P5900 processor that combines compute, connectivity and acceleration technologies. The silicon solutions are included in Nokia’s AirScale radio access products being shipped worldwide as part of its 5G portfolio. By adopting ReefShark in its AirScale portfolio, Nokia is significantly boosting performance and lowering the energy footprint of 5G network rollouts.

Nokia is focused on developing its 5G portfolio, strengthening AirScale and further advancing the capabilities of its ReefShark chipset. The company is working with multiple partners to support its ReefShark family of chipsets, which are used in many basestation elements. In Mobile Access, it expects improvement to be driven by increasing shipments of its “5G Powered by ReefShark” portfolio, product cost reductions, better commercial management and strong operational performance in services.

On Mar 2, Nokia announced that its board of directors has appointed Pekka Lundmark as president and CEO, to revive the company’s faltering 5G business. Lundmark is currently the president and CEO of Fortum, a leading energy company based in Espoo, Finland. He is likely to start his new role on Sep 1, 2020. Rajeev Suri, Nokia’s current president and CEO, will leave his position on Aug 31, 2020 and continue to serve as an advisor to the Nokia Board until Jan 1, 2021.

Nokia’s end-to-end portfolio includes products and services for every part of a network, which are helping operators to enable key 5G capabilities such as network slicing, distributed cloud and industrial IoT. It facilitates customers to move from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and automation. It is witnessing healthy underlying momentum in its focus areas of software and enterprise, which augurs well for its licensing business.

The company is expanding its business into targeted, high-growth and high-margin vertical markets to address several opportunities beyond its primary markets. It had earlier announced plans to accelerate strategy execution, sharpen customer focus and reduce long-term costs. This, in turn, should help the company to position itself as a global leader in the delivery of end-to-end 5G solutions.

Nokia is focused on its strategy that hinges on four priorities. The first priority is to lead in high-performance end-to-end networks with its communication service provider customers. The second priority is based on its relentless pursuit to expand network sales to select vertical markets, specifically energy, transportation, public sector, technical extra-large enterprises and webscale players. Building a strong standalone software business remains the third strategic priority. The fourth pillar aims to create new business and licensing opportunities in the consumer ecosystem.

However, macroeconomic, industry and competitive dynamics continue to take a toll on Nokia’s performance. Its Mobile Access business has been impacted by increased competition in some accounts as rivals, including Ericsson ERIC and Huawei, seek to take share in the early stage of 5G. Also, some customers have reevaluated their vendors in light of security concerns, creating near-term pressure for Nokia to invest in order to secure long-term benefits.

Nokia’s gross margin in first-quarter 2020 is likely to be hit by product mix, a high cost level associated with its first generation 5G products, profitability challenges in China and pricing pressure in 5G deals. Nokia’s shares have lost 39.3% against 7.2% growth recorded by the industry in the past year.

The company topped earnings estimates twice in the trailing four quarters and missed the same in the remaining two quarters, delivering a positive surprise of 87.5%, on average. The stock is currently trading with a forward P/E of 14.51X.   

Nokia currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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