Nokia's CEO is axed over the company's failure to execute its 5G business plan
The 5G race is an intense one. With download data speeds 10 times faster than 4G LTE and lower latency allowing for quick responses between devices, the next generation of wireless connectivity will help create many new technologies and industries. Consider how the faster speeds available with 4G LTE over 3G helped create the rideshare industry that now includes two billion-dollar companies (Uber and Lyft). It is fair to say that the countries and companies that are first to embrace the new standard will benefit economically.
Nokia is letting its CEO go due to a failed 5G strategy
Some countries are facing a dilemma. The U.S. has asked allies not to use Huawei's 5G networking gear because of the manufacturer's ties to the communist Chinese government. However, as British Prime Minister Boris Johnson pointed out recently, there really are no alternatives. Huawei is the largest supplier of networking equipment in the world followed by Nokia and Ericsson. But those two offer technology that is said to be as much as 18 months behind Huawei's gear. In addition, the Chinese supplier offers its customers sweetheart financing terms that are available thanks to the outfit's partnership with China's state-run bank.
Nokia is looking to improve its margins on 5G equipment sales
Today, Bloomberg is reporting that Nokia will replace CEO Rajeev Suri starting this September. The networking equipment provider's new chief executive will be Pekka Lundmark, the 57-year-old CEO of Fortum. That company is a state-owned power generation firm. Suri's reign at Nokia was marred by the company's inability to produce key proprietary chips for 5G equipment forcing it to purchase the components from other suppliers. This cut into Nokia's profit margin. Suri, who has been running Nokia since 2014, has told investors that he needs some more time for his 5G plans to pan out. He will have that six-month transition period before leaving Nokia. But even if things were to turn around during that time period, Suri will still be looking for a new job come September although he will remain an adviser to Nokia's board through the end of this year.
Last week, in the midst of a major stock market meltdown due to fears over the coronavirus, Nokia's shares shot up on word that the company was considering a merger or an asset sale. Rival Ericsson was mentioned as a possible suitor. Last month, Ericsson said that with 79 5G commercial contracts signed compared to 50 for Huawei, it should be considered as the global leader in 5G. As it turned out, Nokia's shares gave up all of the gains over the next two days and company Chairman Risto Siilasmaa said today at a press conference that there are no mergers or asset sales currently being planned. Siilasmaa himself is due to leave Nokia next month with Sari Baldauf expected to be voted in as the new chairperson of the company.
2019 was not a good year for Nokia. The company decided last October to suspend dividends in order to save money to invest in 5G and it also cut its earnings guidance on the very same day. That combination had stockholders rushing for the exits as Nokia's shares cratered 23% in one day. Kimmo Stenvall, an analyst with OP Group, says, "Markets have been very skeptical of whether Suri can continue in his role since the guidance cut last year. He hasn’t been able to deliver and add value to the company, especially in the 5G era, which is what he was expected to do."
For incoming CEO Lundmark, running Nokia will be a homecoming of sorts. Earlier in his career, he had various executive positions at the firm. Nokia says that the 57-year old has been successful at Fortum as he "consistently delivered robust total shareholder returns, successfully renewed the company’s strategy, and positioned it to be a strong player in the transforming global energy sector." Nokia hopes that the executive will be able to do the same thing for the networking equipment manufacturer.
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