When Nokia’s three-year turnaround plan formally kicks off in two weeks, every area of its business will be under heightened pressure to grow and prove technology leadership in their respective segments.

Those that don’t could be on the chopping block.

CEO Pekka Lundmark said as much earlier this week when he shared more details about his strategy and vision for the company just four months after taking the helm.

“Technology leadership is absolutely necessary,” he said, adding that without it Nokia won’t have pricing power and it will be bound to declining market share. “Technology leadership is paramount if you want to deliver economic value” and while the number of spots for leaders in each business segment varies, “usually it’s two, sometimes three, in exceptional cases maybe four,” he explained.

Nokia Aims to Lead or ‘Reassess’ Segment Participation

Segments where Nokia can’t achieve leadership as a top-three vendor won’t be tolerated for long, Lundmark added. “A very critical belief that we will apply is that in cases where we will not be able to establish or show a path to economic value creation, we will reassess our segment participation,” he said. “So we will not automatically be in all different segments in cases we cannot show economic value creation."

Lundmark also made clear that although his companywide reorganization plan will continue through the end of 2023, he could just as likely decide to make significant changes to Nokia’s business in the interim. 

“They’re definitely doing some shopping because I’ve heard they’ve engaged with different parties about the different parts of the business,” specifically Nokia’s optical, wireline, and IP routing businesses, said Ryan Koontz, senior analyst at Rosenblatt Securities.

Nokia has been under pressure to improve the performance of its optical business in particular. “I think that’s been the biggest bleeding segment of the business. So it, to me, would make sense they’re looking to dispose of that,” Koontz said.

However, considering the displacement of Huawei in many markets, the opportunity Nokia has to sell to operators that are replacing Huawei’s optical equipment “is probably the one chance they have to keep it all together,” he said. “Huawei plays very heavy in fixed broadband, in optical, and in wireless, and wireless core, and Nokia essentially has all of those.”

Potential buyers are few and far between, according to Koontz. “I don’t see a whole lot of buyers out there and the buyers that are out there don’t seem like they’d be willing to pay a lot for it,” he said.”If anything, the only thing dividing up the business really brings you is better focus on doing things right for that segment at that time.”

Nokia CEO Willing to Shrink, But How Soon?

Now that Lundmark, Nokia’s new leader, has outlined his plan, tapped leaders for Nokia’s four primary business units, and indicated a willingness to part with business segments that fail to improve the company’s financial performance, investors, analysts, and customers are all eager to see what Nokia might look like in the next couple years. 

“The company had to have changes at the top in its leadership, and in particularly its technology development. The company has made critical mistakes in technology choices the past few years, and that can’t continue,” said Chris Nicoll, senior principal analyst at Omdia.

“When Nokia’s executives are saying that Nokia has developed products that are too hard to install and maintain, that is a self-imposed problem,” he said. Moreover, the lack of direct accountability in place under Nokia’s current leadership structure, which Lundmark addressed in comments this week as well, “has been something of a systemic problem at Nokia” and “a major change was needed.”

Execution and focus are the most glaring problems for Nokia today, according to Nicoll.

RAN, Core, IP Segments Most Critical

“I think radio access networks (RAN), core, and IP are the three areas where Nokia has significant intellectual property the company needs to exploit,” he added. “Moving to cloud native and open matches the direction of the industry and Nokia has some advantage here if they are delivering as expected.”

Nokia is embracing open RAN more strongly than its largest competitors Ericsson and Huawei, and Lundmark said the company will have O-RAN Alliance compliant gear commercially available next year, but that’s more of a long-term play. 

The RAN market is going through tremendous changes because of 5G, the displacement of Chinese vendors in many countries, and the emergence of open RAN, but those shifts will continue to play out for years, Koontz explained. 

“There’s a pretty long runway before open RAN is disruptive in affecting a large portion of the market. We’re probably talking the better part of three years,” he said. 

While Koontz describes Nokia’s open RAN offering as more advanced than Ericsson’s today that “doesn’t mean Ericsson can’t close that gap when they want to,” he added.

Because Nokia’s problems are abundant, they require fixes in many parts. It is a massive company that has faced challenges navigating strategically due to its scale and the various companies and divisions it operates, Koontz said. “It’s never really achieved its promise.”