Nokia and Samsung are replacing Sweden's Ericsson as basestation suppliers to US telco giant AT&T with the transition from 4G to 5G technology, according to a leading industry analyst.
Ericsson AB (Nasdaq: ERIC) provides about 65% of AT&T's 4G basestations, with Nokia Corp. (NYSE: NOK) responsible for the remainder. But the Swedish vendor is nowhere to be seen in the operator's 5G infrastructure, says Michael Genovese of MKM Partners.
AT&T Inc. (NYSE: T) seems to prefer Nokia and Samsung Electronics Co. Ltd. (Korea: SEC) as 5G infrastructure suppliers: Based on his industry conversations, Genovese estimates that Nokia accounts for 65% of "5G wireless access infrastructure" at AT&T, with Samsung accounting for the rest.
"Based on our proprietary checks, we believe both Nokia and Samsung have gained significant market share at AT&T at Ericsson's expense," Genovese writes in a research note issued today.
His prediction is that Ericsson will gain 5G business with AT&T when it comes to operational support systems, orchestration and back-office software, but lose most of its infrastructure business with the rollout of 5G. Nokia, he says, is on course to become AT&T's "prime infrastructure vendor."
Genovese does not indicate in the research note why AT&T may favor Nokia over Ericsson. The Finnish vendor has repeatedly claimed that its broader, "end-to-end" portfolio of network products gives it an advantage over Ericsson, which is more focused than ever on being the world's number-one developer of radio access networks. Ericsson has also recently increased its investments in the US market. (See Ericsson Ramps Its 5G Activity in US, Ericsson's R&D Workout Piles 5G Pressure Onto Rivals and Ericsson vs. Nokia: Who's Ahead in 5G Right Now?.)
Ericsson and Nokia are desperate to land 5G deals in the large US market, where telco interest in 5G rollout is riding high. US government restrictions on China's Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) have also made the US market a much bigger and more important opportunity for the European vendors.
Both vendors have struggled through a recent downturn in mobile network equipment markets, as operators globally have finished building their 4G networks. The arrival of 5G as a standardized technology represents a potential growth opportunity.
Having reported a sequence of operating losses until earlier this year, Ericsson already appears to have turned a corner. It registered a small operating profit in this year's second quarter on a decent performance at its networks unit. (See Ericsson Back in Profit After Fierce Cuts & 5G Action.)
While Nokia's profitability has suffered this year, CEO Rajeev Suri has promised improvements in the final quarter as North American customers start to roll out 5G technology. (See Profits Crash at Nokia's Networks Biz.)
However, Genovese says AT&T's 5G spending has started "earlier and stronger than expected."
"A major ramp in 5G spending got underway in mid-3Q18, which is about half a quarter earlier than we previously expected," he says. "We think the acceleration in 5G spending at AT&T is the key project that will likely help drive Nokia's upcoming 4Q18 outlook above and beyond the normal strong 4Q seasonality."
If Nokia is beating Ericsson at AT&T, the Swedish firm clearly has the upper hand at Verizon Communications Inc. (NYSE: VZ), AT&T's chief rival, which is not using Nokia in its deployment of 5G as a fixed wireless access technology. Genovese expects this to change, though, when Verizon starts to build a mobile 5G network in 2019.
Nokia is also collaborating with T-Mobile US Inc. and Sprint Corp. (NYSE: S), the number three and four mobile operators, which plan to merge their networks if regulators allow it. Both Ericsson and Nokia recently signed multi-year 5G deals with T-Mobile valued at $3.5 billion apiece. (See Ericsson Lands $3.5B 5G Deal With T-Mobile Weeks After Nokia Did Same, Nokia Reels In $3.5B 5G Deal With T-Mobile US and T-Mobile & Sprint: Marriage made in hell.)
— Iain Morris, International Editor, Light Reading