Nokia Pockets €2B From China 5G Deals
Nokia has signed one-year deals collectively worth more than €2 billion ($2.3 billion) with all three of China's national operators as they start to prepare for the launch of next-generation 5G mobile networks in the world's biggest telecom market.
The Finnish equipment vendor said it would provide a range of fixed and network products to China Telecom Corp. Ltd. (NYSE: CHA), China Mobile Communications Corp. and China Unicom Ltd. (NYSE: CHU), from radio to core and optical equipment.
The deals are the latest sign that business is picking up for Nokia this year after a slump in equipment spending by customers that have already built out their 4G networks.
Nokia Corp. (NYSE: NOK) is under pressure to finish 2018 on a high after reporting third-quarter results that failed to excite investors, with network sales up 3% in constant currency terms but operating profits tumbling 26%, to just €246 million ($282 million). (See Nokia Warns of Job Cuts in €700M Shake-Up.)
While the company's network operating margin improved from 1.5% in the second quarter to 5%, Nokia is targeting a margin of between 6% and 9% for the full year. CEO Rajeev Suri has continued to guide for a strong final quarter as customers in North America and other major regions get ready for the launch of 5G services.
Nokia made about €2.5 billion ($2.9 billion) in revenues in the greater China region last year, a figure that equals about 12% of total revenues from the sale of network products and services.
The deals come several months after the company struck a €3.5 billion ($4 billion) deal to build 5G networks for T-Mobile US Inc. in what represents Nokia's biggest 5G deal so far. (See Nokia Reels In $3.5B 5G Deal With T-Mobile US.)
In its statement, Nokia said the agreements it has signed with China's telcos would cover the provision of gear and services until the end of 2019.
"We are excited to continue our close collaboration with these important customers in China, to drive new levels of performance as they transition toward 5G," said Mike Wang, the president of Nokia Shanghai Bell, Nokia's Chinese arm. "Leveraging the breadth of our end-to-end network and services capabilities we will work closely with China Mobile, China Telecom and China Unicom to deploy technologies that meet their specific business needs."
The deal with China Mobile, the country's biggest operator, covers radio access, core and passive optical networks, as well as IP routing and optical transport. Software-defined networking (SDN) tools, as well as network management and professional services, are also included in the contract.
Nokia said it would also help China Telecom to improve 4G coverage and hotspot capacity and continue its "5G cooperation" with the company.
China Unicom, meanwhile, will take a range of technologies, including 4G, edge computing, virtualized IMS, SDN, IP routing and optical transport and fixed network technologies. Nokia has indicated that it is also working with Unicom on the use of artificial intelligence in telecom networks.
The update could be a good sign for Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), Nokia's Chinese rivals, which have traditionally landed the biggest share of business with Chinese operators when those companies are dishing out work.
Nokia said it had signed the deals at the China International Import Expo in Shanghai.
Commenting on the 5G outlook outside North America earlier this year, Suri told analysts he expected to see waves of investment driven by spectrum awards. "South Korea will happen later this year and then you will have Japan starting at some point in the first quarter of next year followed by China around the end of Q2 or in Q3 next year." (See America Is Losing the 5G Race, Says Deloitte.)
— Iain Morris, International Editor, Light Reading