Will Verizon-Samsung deal force Nokia to rethink strategies

Nokia CEO Pekka Lundmark will have a huge task to re-invent the telecom network maker as it lost a major contract from Verizon to Samsung.
Nokia 5G base stationIncidentally, Verizon is currently managed by the former CEO of Ericsson, the main rival of Nokia.

Nokia has suffered a setback after a source close to the matter confirmed it had lost out to Samsung Electronics on a part of the contract to supply 5G equipment to Verizon in the United States, Reuters reported.

The loss for Nokia comes after its new CEO Pekka Lundmark took the top job in August, but the source said negotiations were going on before he took charge.

Nokia has rehired former executive Pekka Lundmark from energy group Fortum to lead the Finnish telecoms company’s efforts to revive its faltering 5G business. Pekka Lundmark joined Nokia in September.

“We play a critical role in enabling Verizon’s 3G and 4G networks and continue to work with them to accelerate innovation in 5G. They remain a top three global customer,” a Nokia spokeswoman said.

Major telecom firms such as Verizon uses several suppliers for building various parts of a network with radio contracts accounting for a big part of the spending.

Liberum analyst Janardan Menon said the contract loss could impact Nokia’s ability to invest in technology at the same rate at its competition, and Ericsson might have even increased its share at Verizon.

JPMorgan earlier said there was a real risk Verizon would reduce its dependence on Nokia as its primary RAN (radio access network) supplier going forward and shift towards Samsung.

The $6.64 billion win is the largest contract for Samsung. South Korea-based Samsung has reinforced its position as a challenger to the dominance of Nokia and Ericsson in selling telecom gear, after China’s Huawei was barred from bidding for 5G contracts in the United States.

Europe’s biggest telecoms operator Deutsche Telekom had dropped Nokia as a provider of radio gear from all but one of its dozen markets in the region, telling it to improve its products and service, a Reuters report revealed earlier.

Verizon CEO Hans Vestberg told CNBC in July last year that Verizon does not use any Huawei equipment.

Verizon is believed to be Nokia’s biggest customer, JP Morgan research said in a July note.

“Samsung winning the order from Verizon would help the company expand its telecom equipment business abroad, potentially giving leverage to negotiate with other countries,” said Park Sung-soon, an analyst at Cape Investment and Securities.

Samsung said in a regulatory filing the period of the contract, which Samsung’s U.S. unit signed with Verizon Sourcing LLC, is from June 30, 2020 to Dec. 31, 2025.

Samsung had a 3 percent market share of the global total telecom equipment market in 2019, behind No. 1 Huawei with 28 percent, Nokia’s 16 percent, Ericsson’s 14 percent, ZTE’s 10 percent and Cisco’s 7 percent, according to market research firm Dell’Oro Group.