A fresh restructuring plan introduced by Nokia’s new CEO Pekka Lundmark is getting mixed reviews from analysts. The collective yawn on some matters and head scratching on others doesn’t point to a clear and positive outcome for Nokia. 

Lundmark’s plan to reshuffle the company under four business units isn’t generating many strong opinions, but his forceful dismissal of Nokia’s “end-to-end” strategy and a reluctant but definitive admission that Nokia lost a major contract with Verizon barely a month before Lundmark took control of the company are catching some flak.

“We did see a decline in our [4G to 5G] conversion rate in Q3, driven by changes at Verizon, where we expect our mobile radio share to trend down over the coming years,” Lundmark said during the company’s third quarter of 2020 earnings call, according to a transcript. 

“Despite this, Verizon remains a top-three customer and our relationship is strong and strategic,” he said. “We continue to work with them in many parts of the network: in routing, in optics, in fixed, in software, cloud, you name it.”

Nokia said it is on track to hit its radio access network (RAN) market share target of 27% for 2020, but warned that it expects share erosion to occur in 2021. The company is excluding China from those calculations, blaming “profitability challenges and unique market dynamics in that region,” but it also recently abandoned its 5G RAN business in China.

Nokia explained that its forecast market share decline is largely due to the loss at Verizon. The operator effectively kicked Nokia to the curb during the summer and awarded roughly half of its RAN contract to Samsung with a $6.64 billion deal that runs through 2025. Ryan Koontz, senior research analyst at Rosenblatt Securities, who originally told SDxCentral about the shocking move in July, later described it as one of the most significant vendor losses in a decade.

“In general, operators typically only swap out the incumbent RAN suppliers when government tells them to do so or when something is really wrong, so the cat is out of the bag now,” said Stefan Pongratz, VP at Dell’Oro Group.

“One of the takeaways for me is that Nokia is acknowledging that they miscalculated the pace and the magnitude of this shift from passive antenna systems towards massive multiple-input multiple-output (MIMO) and 5G, impacting their ability to provide a competitive mobile broadband portfolio both from a performance and cost perspective,” he added. 

Chris Nicoll, senior principal analyst at Omdia, said there’s a tendency for companies to over adjust following the loss of a major customer, but Nokia appears to be maintaining its business with other operators. Verizon’s decision could be rooted in a desire to be more aggressive on millimeter-wave (mmWave) radios and massive MIMO, areas where the operator might have concluded Nokia is not a good fit, he said. 

“Nokia has also had mixed messages regarding fixed wireless access while Samsung has been very consistent in support of Verizon’s fixed wireless access direction,” Nicoll said. 

Nokia’s failure to win a new 5G RAN contract at Verizon had no bearing on its broader restructuring, according to Will Townsend, senior analyst at Moor Insights & Strategy. “It’s no secret that Samsung Networks has been a key partner with Verizon for much of its 5G deployment and I expect Samsung was aggressive on pricing to establish a foothold out of its traditional market presence in Asia,” he said. 

Lundmark is making his mark and demonstrating that “he’s taking Nokia in a fundamentally new direction, which is something he needed to do,” said Ed Gubbins, principal analyst at GlobalData. He did, however, question Lundmark’s decision to eliminate a standalone business unit for its enterprise customers, a growth vehicle for Nokia, opting instead to fold it under the newly formed Cloud and Network Services business. 

Moreover, “a lot of people are going to be a bit confused by the language of departing from an end-to-end solutions strategy, since Nokia has been touting the benefits of that strategy for some time now,” he said. “And some people may remember that before Nokia adopted an end-to-end strategy, it prided itself on being more focused than its competitors — and it moved away from that strategy in the past.”

It’s understandable for industry observers to wonder why Nokia’s executives believe that strategy, which didn’t work before, will work now, Gubbins said. “Even under its end-to-end strategy, Nokia has made multiple internal reorganizations in recent years, so this latest move could prompt a kind of fatigue among customers.”

Nokia’s end-to-end strategy was “expensive and complex,” Nicoll said. “Where Nokia is today with its business, it is smarter to focus on its strengths and look to lead in open networks, especially open virtualized RAN, segments where they are pretty well positioned.”

The company is “behind on chips, but catching up, and I think they are ahead on software and certainly IP,” Nicoll said. 

Nokia’s new strategy will allow it to be more focused and that might lead to some recouping of the footprints it lost in the 4G to 5G transition, Pongratz explained.

Dell'Oro Group estimates that Nokia's 5G RAN share slipped about 5% from mid 2019 to mid 2020, compared to its overall RAN market share position during the same period.

Nokia said it’s successfully converting 4G customers to 5G at a rate of around 90%, excluding China.

“Nokia has its work cut out for it because it’s embracing some disruptive forces like RAN virtualization and disaggregation,” Gubbins said. “It will be a real challenge for Nokia to wield those forces to its own advantage without those same forces eating too much into its traditional cost structure and market share.”

It’s going to be a “delicate balance” for Nokia, one that requires “surgical and nimble” execution, and the application of different value propositions for different use cases, Gubbins explained.