Nokia's Revenue Declines as AT&T Chooses Other Vendors

Nokia, a leading Finnish company in the telecommunications industry, is facing a decline in revenue as U.S. operator AT&T has decided to work with other vendors for the development of a new network. This news has dealt a blow to Nokia's profitability targets and resulted in a significant drop in its shares on Tuesday.

AT&T, in a statement issued late Monday, announced that it had entered into a deal with Ericsson, a Swedish supplier, to purchase up to $14 billion worth of open radio access network technology. Under this five-year agreement, AT&T will be shifting its purchases of certain cell-tower equipment from Nokia to Ericsson in various markets.

As a consequence of this decision, Nokia expects its share of revenue from AT&T to diminish over the next two to three years. AT&T currently accounts for 5%-8% of Nokia's mobile networks net sales for this year.

Following this news, Nokia shares suffered a sharp decline, trading at the bottom of the Stoxx Europe 600 index during the morning session at EUR2.76, down 8%.

Nokia has mentioned that its previously announced cost-reduction measures will partially alleviate the impact of AT&T's move.

The adoption of open RAN (radio access network) technology enables operators to construct telecom networks using equipment from multiple suppliers instead of being restricted to a single vendor. AT&T states that this shift will accelerate its network upgrade while allowing for greater utilization of hardware and software from niche suppliers. They believe this approach will result in enhanced flexibility, reduced network costs, and improved operational efficiencies.

Despite this setback, Nokia remains optimistic about the profitability of its mobile networks business in the years to come. However, due to AT&T's decision, the timeline for achieving a double-digit operating margin may be delayed by up to two years.

According to analysts at Citi, they had projected Nokia's mobile margins to improve from 7% in 2023 to 10% in 2025. Therefore, this announcement represents a significant setback, as stated in their note.

Nokia Faces Setback as AT&T Turns to Ericsson for Open RAN Deployment

Nokia, the primary share gainer in the Remote Access Network (RAN) market for the past two years, has suffered a significant setback as AT&T has chosen Ericsson as its Open RAN supplier for its existing network.

Loss of Second North American Customer Impactful for Nokia

Nokia's loss of share at a second North American customer, especially considering the company's strong presence in that market, is deemed a substantial blow by Citigroup (Citi). The decline follows Nokia's previous loss of significant share at Verizon in 2019.

Nokia Remains Committed to Open RAN Strategy

Despite the disappointment from AT&T's decision, Nokia maintains its full commitment to Open RAN. Recently, Japan's NTT Docomo selected Nokia's O-RAN 5G network for commercial deployment, highlighting Nokia's continued focus on Open RAN.

CEO's Confidence in Nokia's Progress

Pekka Lundmark, the Chief Executive of Nokia, expressed confidence in the company's progress in the mobile networks business over the years. He cited increased RAN market share and technology leadership as evidence of Nokia's advancements. Lundmark firmly believes that their strategy is well-positioned to create value for shareholders, with opportunities to expand market share, diversify the business, and enhance profitability.

Nokia Remains Key Partner for AT&T

AT&T continues to view Nokia as a vital partner in both its network infrastructure and cloud and network services businesses. Although AT&T's decision to choose Ericsson as its Open RAN supplier was driven by specific reasons related to the U.S. telecommunications company, Nokia's relationship with AT&T remains intact.

Ericsson Surges Ahead With Open RAN Deployment

Citigroup notes that Ericsson's selection as AT&T's Open RAN supplier is a remarkable milestone. Ericsson becomes the first global vendor to deploy Open RAN with a major operator into an existing network. The significance of the announcement is further underscored by the fact that the U.S. is the largest telecom equipment market worldwide, and AT&T stands as the leading spender in that market across mobile and fixed sectors.

At 10:30 GMT, Ericsson shares traded 5% higher at SEK57.01.