The supply chain crunch is coming for every company and person one way or another, Nokia notwithstanding. The Finnish vendor today said the availability of components poses the greatest constraint to business growth at the moment and potentially through 2022.

“We could have grown faster without supply chain constraints,” CEO Pekka Lundmark said during the company’s third quarter of 2021 earnings call. “The main point here is that we are currently not constrained by market demand or our own production capacity. But what is constraining our growth at the moment is availability of components.”

Lundmark noted that “global semiconductor demand is greatly exceeding supply at the moment,” adding that global demand between 2020 and 2022 is expected to grow almost 40%. This, combined with “unprecedented component cost inflation for our industry,” makes for “a bit of a challenging situation,” he said. 

Nokia warned investors that component shortages will likely impact Q4 and limit margin expansion potential in 2022 — a year Lundmark described as an “inflection point” with loads of uncertainty.

“This is an industry issue, but it would be naive to say that it would not affect us as well. It will and it is possible that the situation will get more challenging before it starts getting better,” Lundmark said.

Although semiconductor suppliers are currently investing heavily to increase semiconductor production, capacity remains lagging. “We can be fairly confident that when we get to 2023 and then 2024, this situation could completely reverse itself, and then there could be excess capacity which would then be reflected on prices.”

Indeed, because Nokia’s 2022 outlook rides largely on the supply chain, the vendor declined to provide guidance for the coming year. In 2023, it expects Mobile Networks to increase up to 8%, Network Infrastructure up to 12%, and Cloud and Network Services up to 11% year over year.

Lundmark declined to discuss the type of price increases Nokia is experiencing, but reiterated “the whole industry of semiconductors is being affected” because fundamental challenges extend beyond individual chipmakers and involve wafer production and the availability of substrates for components.

Nokia banked $410 million in net income on $6.3 billion in revenue, reflecting a 78% year-over-year increase in profit and almost 2% sales growth. Nokia’s Mobile Networks business reported a 5% year-over-year decline at $2.7 billion. Network Infrastructure increased 7% year over year to $2.2 billion, Cloud and Network Services jumped 13% to $873 million, and Nokia Technologies grew 11% to $428.5 million.

In North America, which Lundmark described as Nokia’s “most important and largest market,” the vendor reported 9% growth and attributed that to the performance of other business units that offset the decline it’s experiencing in Mobile Networks. That decline is almost entirely due to Verizon’s 2020 decision to kick Nokia to the curb and award Samsung roughly half of its 5G radio access network (RAN) contract to the tune of $6.64 billion.

Nokia claims it has currently inked 189 commercial 5G contracts, including 72 live 5G networks. It expects 5G to continue making positive contributions to growth.

“We believe that we're still maybe two to three years away from the peak of the 5G market,” Lundmark said. “The 4G market peaked and then it started to decline quite quickly after that. We believe that there are good reasons to believe that this peak could actually last for a longer period of time, and then it would gradually start declining toward 2030 when 6G will start hitting the market.”

That longer period of growth following 5G’s peak will ride on a “longstanding promise” to move enterprise operational technology (OT) to networks and the cloud, according to Lundmark. 

“There are 15 million industrial campuses in this world. That's an amazing number” that puts Nokia in position to deliver services, network infrastructure, and edge cloud platforms to enterprises for several years to come, Lundmark said. 

Nokia’s enterprise aspiration spans different segments with unique requirements and market structure, including hyperscalers, and two variants of private wireless: wide area networks for expansive network footprints and on-premises deployments on campuses and industrial environments. 

Nokia earlier this month introduced MX Industrial Edge, a new all-in-one server designed for industrial applications in asset-heavy industries. 

Finally, Lundmark highlighted last month’s unveiling of its fifth-generation routing silicon, which Nokia claims to be the first programmable routing chip that supports 800 Gb/s pluggable optics. Describing it as “perhaps the most important technology highlight of this quarter,” Lundmark noted that Nokia has gained market share with every generation of routing silicon and “we believe that this will continue.”