Europe seems to be at risk of losing one of its big mobile kit vendors. After months of speculation about the plight of Nokia, and the potential answer to its problems, the Finnish company was today reported to have been in talks with South Korea's Samsung, among others, about a sale of its mobile networks business group. After the story was broken by Bloomberg, citing "people with knowledge of the matter," Nokia's share price gained 6% in Helsinki during late-afternoon trade. Markets evidently feel this is credible.

But it would be a dramatic and shape-shifting move for Nokia and the entire telecom industry. A sale to Samsung of the entire mobile unit, which Bloomberg's sources say could be valued at about $10 billion, would disengage Nokia from its largest market, responsible for 44% of all company revenues last year.

Overnight, it would turn dozens of European and other telcos into customers of Samsung, making the Asian electronics giant one of the world's biggest 5G network vendors. For many people who have traced Nokia's mobile fortunes this century, and the journeys of the other US and European companies it hoovered up in several rounds of consolidation, a sale would mark a sorry end to the story. And it would be a further blow to those telco executives who grumble about the lack of supplier choice and competition in the market for radio access network (RAN) products.

How is it even possible? Partly because the entire RAN sector is having a miserable time. Revenues fell about 11% last year, to roughly $40 billion, according to Omdia, a Light Reading sister company. It expects sales to fall another 7% to 9% this year. After earlier rollouts, telcos struggling to generate a decent return on their 5G investments have slashed capital expenditure. In North America, where Nokia and others generate a healthy slice of their profits, operators built up equipment stocks after the supply-chain crunch of the pandemic. So far this year, they have seen little reason to shop for new components.

On the RAN ropes

Nokia, though, has suffered more than either Ericsson or Huawei, its two big rivals. Sales at its mobile networks business group fell nearly a third year-over-year for the first half of 2024, to about €3.5 billion (US$3.9 billion). At Ericsson's equivalent unit, by comparison, they were down only 16%, to around 71.4 billion Swedish kronor ($7 billion). Nokia's operating profit for mobile networks has plummeted 62%, to just €129 million ($143 million).

It has reeled, like a boxer on the ropes, after a couple of big hits. In 2020, under previous management, it was beaten by none other than Samsung to a major 5G contract with Verizon, subsequently losing the US telco as a major mobile customer. Few were then surprised. Let down by Intel on the supply of 5G basestation chips, it had fallen back on field programmable gate arrays (FPGAs), a more expensive type of component. Profit margins shrank as Nokia struggled to compete.

But this is now ancient history, in technology terms. Under new management, it has phased out those FPGAs and refreshed its entire product portfolio. While not everyone feels Nokia is at quite the same level as its Swedish rival, its market share has grown outside China, where contracts these days go to local vendors. The earlier concerns about its product competitiveness aired by numerous telcos have faded.

The blow that caught the entire market by surprise, then, was an AT&T decision, announced in December, to evict Nokia, which had previously served about a third of the network footprint, and replace it with Ericsson, the other RAN supplier. AT&T appears to see economic and technical attractions in using a single vendor for key platforms, including service management and orchestration and baseband software. Nokia, as the smaller vendor, lost out.

AT&T has justified the decision by saying Ericsson's technology will comply with new open RAN specs, designed to ensure kit will interoperate with other vendors' products. But the purported open RAN move makes AT&T heavily reliant on Ericsson and has inevitably weakened Nokia, which now counts T-Mobile as its only remaining big US customer. A cheerleader for open RAN, whose goal was to spur RAN rivalry, may ultimately bear some blame for a lessening of competition.

This is no exaggeration, simply because AT&T accounted for between 5% and 8% of Nokia's mobile network sales in 2023, according to the vendor's own estimate, and likely an even bigger share of profits. In response to its various market difficulties, Nokia has already cut deeply into its workforce, eliminating 6,000 of 86,000 jobs between September last year and July. Most of the decline, CEO Pekka Lundmark told Light Reading on a recent call, has been in mobile networks.

Leapfrogging Ericsson

Talks with Samsung have not been confirmed by the Finnish vendor. "Nokia does not comment on market rumors or speculation," said a spokesperson by email when approached for comment. "Nokia is committed to the success of its mobile networks business, a highly strategic asset for both Nokia and its customers. The business has made significant progress this year both on right-sizing its cost-base while protecting our product roadmap and winning new deals with new customers and increasing share with existing customers. Nokia is focused on ensuring that mobile networks is positioned to serve its customers building the best performing networks, investing in its portfolio and creating value for Nokia's shareholders."

But a full takeover would immediately catapult Samsung into the big league. Last year, the South Korean company accounted for just 6.1% of all RAN sales worldwide, according to Omdia. A takeover of Nokia would instantly boost this to 25.6%, establishing Samsung as the world's second-biggest RAN vendor, behind Huawei, with 31.3%, but just ahead of Ericsson's 24.3% share.

Combining assets that seem to overlap may be less problematic than in the case of much bigger mergers, including Nokia's €15.6 billion ($17.3 billion, at today's exchange rate) takeover of Alcatel-Lucent in 2016. The challenges involved in that were blamed partly by Kristian Pullola, Nokia's former chief financial officer, for its 5G product difficulties several years ago. Samsung and Nokia also rely on some of the same component suppliers, including Marvell Technology for baseband chips, even if their technology approaches do not always align.

Much like Ericsson and Nokia, Samsung, which declined to comment on the Bloomberg report, has recently struggled in the 5G equipment market. In June, it was reported to have moved workers out of its networks business and into other divisions, reassigning 700 of 4,000 employees in South Korea. That move came after revenues at its networks business fell 31% year-over-year for the first quarter, to 740 billion South Korean won ($555 million). For the second quarter, they were down 21%, to the same figure of KRW740 billion.

Unlike Nokia, however, Samsung has a much bigger electronics business that has recently been in good health thanks to demand for chips and smartphones. Second-quarter company sales rose 23%, to more than KRW74 trillion ($55.5 billion), while profits nearly quintupled, to KRW9.84 trillion ($7.38 billion). Nokia, by contrast, reported an overall 18% drop in group sales, to about €4.5 billion ($5 billion), and saw profits drop a fifth, to €328 million ($364 million), over the same period. Moreover, its recently announced $2.3 billion bid for Infinera, an optical equipment maker, suggests it sees other parts of the equipment market as a better bet than mobile.

Given Samsung's small market share, regulatory authorities may be unopposed to any deal. But the same will not go for many operators, unless they have abandoned their open RAN efforts to foment competition. Its 6.1% RAN market share makes Samsung the fifth-biggest RAN vendor worldwide, and the best alternative to Ericsson and Nokia for telcos now forbidden from using Chinese suppliers. In many countries, a deal could effectively herald a duopoly.