As Nokia Corp. prepares for its first earnings update under CEO Pekka Lundmark, any excitement about the company's fresh start could be overshadowed by gains made by rivals Ericsson and Samsung Electronics Co. Ltd.
The Finnish network equipment manufacturer said in 2018 it was unprepared for the advent of next-generation wireless technology 5G, and has since worked on reducing its product costs, most recently by increasing its pool of chip suppliers.
While Nokia's new leadership continues to overhaul the company's 5G equipment strategy, Ericsson and Samsung have a head start outside of Europe, analysts told S&P Global Market Intelligence.
U.S. cell carrier Verizon Communications Inc., for example, recently chose Samsung to help it deploy 5G networks in a deal worth $6.6 billion. The transaction was viewed as a contract loss for Nokia, which played a crucial role in building out Verizon's 3G and 4G networks. Nokia is facing a 5% drop in yearly sales as a result of the loss, Nordic bank SEB estimated in a note. The company has since secured contracts with BT Group in the U.K. and Orange SA and Proximus in Belgium.
Samsung, a relatively new entrant in the 5G equipment market, also secured contracts with carriers in Canada and New Zealand. Its long-term goal is to take 20% 5G market share.
Ericsson, meanwhile, is six to 12 months ahead of Nokia in terms of 5G radio hardware development, according to Ryan Koontz, an equity analyst at Rosenblatt Securities who covers U.S. and European telecoms.
"Ericsson is set to be the number one 5G radio access network vendor in the world," Koontz said in an interview.
Nokia is trailing its Nordic peer in key areas of tech development, according to Achal Sultania, a director at Credit Suisse's research division who covers the European tech hardware sector. They include dynamic spectrum sharing, or DSS, which allows carriers to use 4G spectrum bands to launch 5G services. The innovation has become more critical as 5G spectrum auctions have been delayed due to the coronavirus pandemic. Nokia is around a year behind Ericsson in terms of a DSS product launch, Sultania noted.
At least 25 global operators are using DSS in 5G trials or commercial launches as of September, according to Kagan, a research division within S&P Global Market Intelligence. Among them are Brazilian operators Claro Brasil and Telefônica Brasil, while both Verizon and AT&T Inc. in the U.S. have said that they plan to use the tech as well.
In addition, Nokia's antennas are "bulky" compared to the kit produced by Ericsson and Huawei, Sultania said. The larger the gear, the extra equipment and paperwork you require for installation, making the process more time consuming, Sultania added.
"Nokia needs to communicate to the market the action they are taking to catch up on their products portfolio," Sultania said.
Nokia said in late July that it was "making meaningful progress in closing gaps to the competition" in its mobile radio kit. The company's cost-effective 5G products powered by system-on-chip Reefshark semiconductors — sourced from Intel Corp., Marvell Technology Group Ltd. and its most recent chip partner Broadcom Inc. — reached 25% of shipments in its second quarter, with a target of 100% by 2022.
Nokia will provide an update on its quarterly key performance indicators on its Oct. 29 earnings call, a company spokesperson said.
Competition from Samsung may be felt more in the U.S. — courtesy of its existing relationships — compared to Europe where it is currently unproven, analysts said. The South Korean firm is expected to leverage the Verizon win to strengthen ties with fellow carrier AT&T, Koontz said. It will also look to "engage" T-Mobile US Inc., which uses Nokia and Ericsson's kit, and recently merged with Samsung partner Sprint Corp., he added.
Samsung may also benefit from carriers' preference for two or three vendors, according to Peter Nielsen, an equity analyst at Nordic investment bank ABG Sundal Collier. "Network operators want to diversify and not become dependent on a single supplier," he said.