Nokia’s executive team today did its best to frame its lagging performance of late as being in the rearview mirror as it pushes ahead with a massive restructuring plan. 

The Finnish vendor’s leaders conveyed confidence that it will return to or increase growth across all four of its revamped business units, but Mobile Networks, its largest business, remains its most challenged. Nokia’s radio access network (RAN) business is still licking its wounds after suffering three significant losses: a retreat in China after market share declines, the loss of a major contract with Verizon, and a critical mistake it made on silicon.

All three of those problems, which came to a head during the last two years, will continue to impact the company’s results in 2021, according to Nokia. Those mistakes, coupled with increased research and development on 5G, effectively position Nokia’s RAN business to break even this year, Tommi Uitto, president of Mobile Networks, said during Nokia’s presentation for analysts and investors.

This year is a “tough starting point” and “the year of the reset,” he said. While Nokia expects to improve operating margins in the RAN business by as much as 8% by 2023, it only expects revenue in that business unit to grow about 1% year over year through 2023, and it’s excluding China from that outlook. 

“5G RAN is foundational to Nokia’s future and the company will do whatever it takes to catch up with rivals on the strength of its offerings. Though they are likely to lag their closest rivals for a bit longer, definitely do not count them out of the leaderboard,” Chris Antlitz, principal analyst at Technology Business Research, told SDxCentral.

Much of that lag can be attributed to Nokia’s earlier decision to rely on FPGA, which put the vendor’s 5G gear at a disadvantage on cost and therefore made it less competitive. That put the company behind on silicon, a critical component of 5G RAN equipment, just as 5G contracts and deployments gained momentum.

That critical mistake remains one of Nokia’s biggest challenges, but it’s making progress on that front, Ed Gubbins, principal analyst at GlobalData, explained. The company’s newer 5G RAN equipment, which features a system-on-a-chip (SoC), is expected to comprise 70% of all RAN products shipped by the end of this year, he added. 

“Nokia’s early decision to go with FPGA silicon for 5G products essentially put it at a bit of a disadvantage against competitors, primarily related to cost and power consumption. While 5G performance is certainly important, network efficiency and cost optimization remain top of mind among communications service providers,” Patrick Filkins, senior research analyst at IDC, said.

Nokia’s rebooted 5G strategy is well underway and its new SoC improves on both areas, he added. “For now, the decision to use FPGAs has predominantly impacted Nokia’s operating margin, but it hasn’t significantly impacted its 5G pipeline in my view.”

Those technology choices and course corrections preceded his tenure, but CEO Pekka Lundmark has already made significant changes to Nokia’s operating model just seven months after taking the helm of the beleaguered company. The company has been remade under four business groups, the executive team is shrinking from 17 to 11 people, and at least 14,000 employees are being moved from corporate functions to Nokia’s for core business groups.

Lundmark today reiterated that Nokia won’t tolerate businesses that don’t command technology leadership and remain a top three vendor in their respective segments. “Now the business groups are highly empowered to execute and they will control all the resources they will need to execute this plan, but with that empowerment comes also a very high degree of accountability,” he said. 

“We will not tolerate businesses with subscale performance and in cases there would be businesses within these groups that would not meet the targets, we would immediately assess our options. We will have a pretty high degree of performance management and accountability applied to all our businesses,” Lundmark explained. “You can be assured that in case this plan does not lead to results there will be other options considered.”

He also explained that Nokia’s recently announced plan to cut up to 10,000 employees by the end of next year could impact closer to 5,000 employees if the company’s targets are being met. Those objectives include year-over-year revenue growth rates of 2% in Network Infrastructure and Cloud and Network Services through 2023. 

The outlook for growth in Nokia’s Mobile Networks unit is comparatively lower than its other businesses but it’s also arguably its most important asset and likely to be allowed more leeway as a result.

That doesn’t necessarily reflect a contradiction because “technology leadership is a fairly subjective concept that can be defined a few different ways, and Nokia can easily say that, despite the setbacks it’s had related to silicon, it expects to be a technology leader in 5G RAN in the coming years,” Gubbins said. 

More broadly and as part of the ongoing restructuring plan, Nokia has adopted four new commitments, according to Lundmark. The company intends to be a trusted partner for critical networks, focus on technology leadership in each of its business groups, capture the value shift to cloud and new business models, and create value with long-term research and intellectual property, he said. 

“The three-phase journey of reset, accelerate, and scale” is a structure that will help Nokia deliver on those commitments and return to sustainable, profitable growth, Lundmark said. “All our business groups and functions are contributing to this journey and address it in ways specific to them,” and “all are united by Nokia’s new purpose and refreshed culture.”