Nokia has secured a €250 million (US$283 million) funding injection from the Nordic Investment Bank (NIB) that it will use to support R&D spending on 5G technology between now and 2020.
The new funding, which will also refinance some maturing Nokia Corp. (NYSE: NOK) debts, comes as European vendors battle faster-growing Chinese rivals like Huawei Technologies Co. Ltd. for technology leadership in the 5G era, and is a sign of the importance the state-backed NIB attaches to the new communications standard.
"We see the size and importance of Nokia for the Nordics and Finland and we have bought the story that 5G could change what is happening with the IoT [Internet of Things]," says Henrik Normann, the president and CEO of the NIB. "When we are talking with the car industry, when we are talking with other industries, we see this as a very important step in increasing business productivity."
Its interest in 5G appears to mark a change in tack for the NIB, which has not previously dedicated loans to specific technologies but offered more general R&D support. With headquarters in Helsinki, the institution was founded in the late 1970s by the five Nordic countries of Denmark, Finland, Iceland, Norway and Sweden.
The sum it is providing to Nokia works out at roughly 5% of the vendor's entire R&D budget last year, although it would represent a much bigger proportion of what Nokia spends on 5G specifically. The funds will be used to support R&D activities in Europe and largely in Finland, says Kristian Pullola, Nokia's chief financial officer. Pullola will not disclose exactly how much Nokia spends on 5G R&D but says the figure is growing as a percentage of total R&D as cuts are made in legacy areas. (See Nokia Warns of Job Cuts in €700M Shake-Up.)
While Nokia spent €4.9 billion ($5.6 billion) on R&D last year, and investments by Sweden's Ericsson AB (Nasdaq: ERIC) totaled 37.9 billion Swedish kroner ($4.2 billion), both companies are dwarfed on the R&D stage by Huawei, which splashed as much as 89.7 billion Chinese yuan ($13 billion) on overall R&D expenses in 2017. (See Ericsson's R&D Workout Piles 5G Pressure Onto Rivals and Huawei Dwarfs Ericsson, Nokia on R&D Spend in 2017.)
Today's announcement from Nokia comes amid concern that Europe already lags other parts of the world in the race to build 5G networks and that its industries may lose out unless the situation changes. Consequently, the NIB funding will focus mainly on the use of 5G in an industrial setting. Through techniques such as network slicing, which effectively allows a portion of the 5G network to be reserved for a specific business, 5G could provide a spur to Nordic competitiveness, Nokia believes.
"If a country or continent stays behind in the 5G era, that could have an impact on the competitiveness of industries operating from that country or continent," Pullola tells Light Reading. "We see that investments are ongoing in the US and expect China to invest a lot in the industrial use cases around 5G. As a result, we all need to respond to that."
Pullola warned that economic activity would shift toward "countries that enable this to happen" if the investments are not forthcoming.
The NIB investment follows a funding injection of €500 million ($567 million) from the European Investment Bank in August. That loan was similarly aimed at supporting Nokia's R&D activities in the 5G area. (See Nokia Nets €500M for 5G Research .)
China's Huawei and ZTE, which compete against Nokia and Ericsson in mobile networks markets, are similarly thought to have received R&D support from Chinese state lenders. The NIB, meanwhile, loaned Ericsson $220 million to support 5G R&D in late 2017 as part of a larger 5G R&D fund-raising effort: Ericsson has also struck 5G development funding agreements with the European Investment Bank.
Nokia said the NIB loan has an average maturity of approximately five years after disbursement.
— Iain Morris, International Editor, Light Reading