Nokia Cuts Margin Target After Ericsson Wins Big Open RAN Deal

Telecom equipment giant Nokia announced on Tuesday a revision in its operating margin target, downscaling it to at least 13 percent by 2026 from the previously goal of at least 14 percent. This revision follows a setback in securing a crucial Open RAN network deal with AT&T, a prominent U.S. telecom carrier.
Nokia @ India Mobile Congress 2023Despite maintaining confidence in achieving the initial target, Nokia attributed the revision to the prevailing market conditions within its mobile networks business. The company deemed this adjustment a pragmatic response to current industry dynamics.

Nokia faced a setback as AT&T opted for Ericsson to construct a telecom network utilizing the innovative Open Radio Access Network (ORAN) technology. The agreement with Ericsson is slated to encompass 70 percent of AT&T’s wireless traffic across the United States by the culmination of 2026.

The adoption of Open RAN technology by AT&T marks a significant stride in enhancing its network infrastructure. However, this decision dealt a blow to Nokia’s prospects, prompting the company to reconsider its operating margin targets in light of the evolving competitive landscape.

Despite market challenges in Mobile Networks, Nokia remains confident in future margin enhancements and targets for sustained growth beyond 2026.

Offering insights into the company’s preliminary 2024 planning assumptions, Nokia foresees growth in Network Infrastructure, challenges in Mobile Networks due to market decline, modest growth in Cloud and Network Services, and expectations for Nokia Technologies contingent on ongoing discussions with smartphone customers.

Nokia, at an investor and analyst event, unveiled updates regarding its group strategy, emphasizing increased autonomy for its four distinct business groups to expedite value creation. Since transitioning to a simplified operating model in 2021, Nokia has organized into four profit and loss (P&L) responsible business groups, each catering to unique customer offerings. These groups have notably augmented R&D investments, bolstering technological prowess across key sectors.

To enhance agility and investment potential, Nokia is granting more strategic autonomy to its business groups. Dedicated sales and go-to-market teams will augment each group’s operational independence, driving growth, portfolio management, and strategic partnerships.

Nokia’s corporate center will pivot to a strategic architect role, overseeing vital areas like target setting, portfolio development, and compliance. Long-term research through Nokia Bell Labs remains pivotal, recently announcing initiatives to unleash commercial potential outside Nokia’s strategic boundaries.

To offer enhanced transparency, Nokia plans to report cash flow and regional sales at the business group level starting in 2024.

Tommi Uitto, President of Mobile Networks, outlined strategies to fortify resilience and profitability by 2026, targeting a double-digit operating margin of approximately EUR 10 billion.

Raghav Sahgal, President of Cloud and Network Services, highlighted the group’s vision to lead the networking software revolution and expand in enterprise connectivity, emphasizing SaaS and Network as Code.

Pekka Lundmark, President and CEO of Nokia, stated, “Our move towards business group autonomy started in 2021, shifting from an end-to-end model to financially accountable groups. Today, we affirm our commitment to driving market-leading technology through distinct business units, each with unique needs and targets.”