On October 28, foreign media reported that Nokia’s stock price plunged nearly 25% in recent days, its biggest one-day drop since at least 1991, and despite the dismal revenue, Nokia actually dominates the telecom equipment market. The most recent quarter suddenly announced a Sharp contraction in profits. Nokia Corp lowered its earnings outlook to 2020 and said it will suspend its dividend for the next six months.
According to a report by Quartz Financial Network on October 24, Nokia CEO Rajiv Suri said in a speech that making fancy new equipment for 5G equipment is expensive.
It has only two major competitors: Ericsson and Huawei. Huawei’s equipment is much cheaper. In order to compete for market share, Ericsson has also been discounting recently.
The report quoted Suri as saying that by 2021, the competitive pressures threatening Nokia’s latest profits should ease. But in the long run, it’s unlikely to get any better. Operators are already using the “software” of new network architectures to work with smaller suppliers in an effort to diversify their supplier base and break free from supplier oligopoly. Nokia’s unique strategy to leverage its own end-to-end offering by selling directly to businesses (a segment that grew 30% year over year last quarter) may help insulate it from increased competition from suppliers.
Nokia and its two main rivals have invested heavily in new 5G network technology, developing an entirely new network architecture that replaces hardware with software. But the equipment is still so expensive that it threatens the already strained profitability of telecom operators, leaving them reliant on a single supplier. This is likely the reason why 5G is developing at a slower pace than expected.