• Slow adoption of 5G standalone has been dampening results for both providers.
• Both Nokia and Ericsson expect to benefit from increasing 5G traffic levels and are positive in terms of the outlook for the RAN market for the next 2–3 years.
• TrendForce estimates that Huawei, Ericsson and Nokia will account for 74.5 per cent of the global base station market in 2022.

Enterprise business and cloud services are likely to provide greater revenue growth than the traditional mobile RAN business for both Ericsson and Nokia, industry experts said.

“Currently, Ericsson is more successful while Nokia is scrambling to recover from missteps of years past. Looking forward, success in 5G will continue to be the biggest factor for both,” Caroline Gabriel, Research Director at Analysys Mason, said.

Ericsson’s and Nokia’s businesses are very similar in many ways. The companies are of similar size in terms of total revenue and profit, and they are both long-established major suppliers to the telecoms industry. Both have also been through a recent period of decline and are in turnaround mode, with plans heavily tied to 5G.

Strong quarterly results

These two units are now approximately the same size in terms of sales revenue but Nokia is still known primarily as a mobile business, so signs of a 5G-related turnaround have been essential to ensuring market and operator confidence.

The quarterly results of Ericsson and Nokia were solid and suggest that they may diverge more significantly in the future.

Nokia’s wireline networks business is increasingly the revenue growth engine, while Ericsson hardly plays in this sector. Nokia has also made greater inroads into the direct-to-enterprise market, though Ericsson is now making stronger moves in this direction following the acquisitions of Cradlepoint for $1.1 billion in 2021 and Vonage for $6.2 billion this year.

Both the firms provided some positive indicators for the network equipment business in general, as well as some insights into the two vendors’ contrasting turnaround strategies.

Gabriel said that Ericsson’s wireless networks revenue continues to grow steadily (as it has in the past few quarters) while Nokia reported the first growth in its Mobile Networks division’s revenue for three quarters.

Optimistic for future growth

“Both companies reported significant increases in the number of 5G deployments and are optimistic for future growth. The business has been particularly strong for both vendors in North America, and that in Europe has been picking up, particularly for Ericsson.

“Both Nokia and Ericsson expect to benefit from increasing 5G traffic levels, which will require a continued expansion of 5G networks and a migration to 5G standalone and are positive in terms of the outlook for the RAN market for the next 2–3 years, mainly due to 5G network expansions,” she said.

Research firm TrendForce estimates that Huawei, Ericsson and Nokia will account for 74.5 per cent of the global base station market in 2022.

Network expansion agreements

Looking at industry players, Huawei is actively expanding in markets such as South Africa, Saudi Arabia, Turkey, Vietnam, and Brazil. Recently, it has partnered with operators such as MTN and Rain in South Africa to build more than 2,500 5G base stations. Ericsson has extended its reach to the UK, Saudi Arabia, Spain, Belgium, Luxembourg, and Lithuania, providing 5G private network solutions for BT and STC.

Nokia won a ten-year network expansion agreement with Orange in Poland to upgrade its existing network including support for phasing out Orange 3G network equipment and reallocating frequencies to enhance its 4G and 5G coverage and capacity solutions.

In addition, Nokia will provide the latest energy-saving AirScale products including solutions such as Single RAN, AirScale base stations and 5G massive MIMO antennas. The company has also signed a mid-band 5G network expansion agreement with UScellular in the United States.

Huawei is expected to hold 29 per cent of the global base station market share this year compared to 30 per cent last year while Ericsson could hold 24 per cent market share compared to 23.5 per cent a year ago and Nokia by 21.5 per cent this year compared to 20 per cent a year ago.

However, concerns regarding geopolitical tensions in many countries mean that open-source networks are seen as the solution to the problem of supplier dependence. Whether in terms of security or cost, open-source software is extremely critical to the development of 5G networks.

Proactive approach

In addition to improving operational efficiency, it can accelerate network resiliency deployment, but compared with a traditional Radio Access Network (RAN), Open RAN has more security issues.

TrendForce believes that with the evolution of 5G deployment towards the core and Open RAN cloud, equipment manufacturers will strengthen network protection mechanisms and detection of RAN threats to reduce risk.

Larry Goldman, Chief Analyst at Analysys Mason, said that pandemic-induced supply chain problems limited both companies’ ability to ship some orders that had been placed.

“Ericsson took a more proactive approach and built a component inventory to ensure that it could fulfil its contracts. Nokia invested less in building up an inventory than Ericsson, and acknowledged that it could have done more mobile business if it had had more supplies,” he said.

However, he said that Ericsson’s policy affected its gross margin because of the cost of stockpiling components.

“It is not just the supply chain issues that cast a cloud over the quarter. Neither vendor called it out, but the slow adoption of 5G standalone has also been dampening results by delaying core network deployments. This is particularly important to Nokia because a significant architecture change could enable it to win customers from Ericsson, rather than just expanding its existing installations,” he said.

Private 5G networks

Gabriel said that mobile networking is the most important part of the business for both companies and both are evaluated broadly in terms of how well they are doing in this sector.

However, she said that both are also looking for growth in other areas – Nokia gets only about two-thirds of its total revenue from mobile and does about 10 per cent of its business with enterprises, while nearly all of Ericsson’s revenue is from telecoms.

“Both Nokia and Ericsson will put more emphasis on, and get more growth from, enterprise customers going forward, particularly as private 5G grows in importance (this is another area in which Nokia has some advantage),” she said.

Cloud services and cloud-based technology are other areas that both vendors are emphasising strategically for growth.

“Nokia has a cloud and network services segment that it breaks out in financials, while Ericsson announced the creation of a new Cloud Software and Services business unit in the second quarter of this year, which it will be reporting on in the future,” Goldman said.