Late last week, Bloomberg broke an anonymously sourced story that Nokia was coming under investor pressure to explore options for disposals and perhaps even another merger. Nokia is in the middle of a crucial battle for 5G RAN supremacy, its stock price came under huge pressure in 2019 and it recently warned investors 2020 isn’t going to be a bumper year. Therefore, the company has been pretty heavily scrutinised and watched. But none of the scrutinisers or watchers had seen this story emerging.
You can tell everyone was surprised because nobody even pretended not to be. There were no “as expecteds” or “long rumoureds”. There was just a general, “What?” The most “ah yes” anybody could reach for was to point out that with the US Attorney General recently proposing that US money somehow takes control of Nokia or Ericsson, maybe someone with a lever was beginning to push down on one end.
Nor had anyone predicted the second shoe that dropped this morning – that CEO Rajeev Suri is headed for the exit, to be replaced by Pekka Lundmark, CEO of energy company Fortum and himself a former Nokia employee.
As the initial Bloomberg story broke I posed a question on Twitter. (For those of us who work largely alone, this is the equivalent of pushing back your chair in the office and distracting the two people either side of you with your own thoughts.)
“Is Nokia really in this much trouble?” I asked, referencing the apparent desire to see it, or bits of it, sold off. “It’s not so much that it is in trouble”, came the reply from one desk next to me, who just happened to be moonlighting in my office from Bloomberg. It’s more that the shares are trading so low as a multiple of earnings the company is vulnerable to activist investors. Of course, the shares are trading low because investors are struggling with Nokia’s jam tomorrow messaging, and the continued rumours (denied to an extent by Nokia) that it is behind on 5G RAN delivery.
Then this morning, at market opening, the CEO leaving story hit the wires. Presenting this as a planned succession, Nokia said that Suri, a CEO for 10 years and a 25 year Nokia veteran in total, had expressed a desire to move on and do the next thing with his life. Accordingly an orderly process had been put in place to identify his successor, and Suri would remain available for consultation.
It wasn’t a case of “nothing to see here”. Clearly there was quite a lot to see, and Nokia knew it, it’s just that the message was definitely not, “We are taking this action as a direct result of investor pressure to do something.”
The company said it had, with Suri a part of the process, been monitoring Lundmark for “several years” as part of its succession planning. That’s because Suri told them a while back that he was considering stepping down “at some point in the future” once a succession plan was in place.
“You may have seen recent speculation in the media that are assessing strategic options for the company. We do not have any such actions under way,” said Chair Risto Siilasmaa. Later he added that the CEO succession is not related to any recent events. For that matter, though, he said that of course any new CEO would be able to present any new strategic options to the board.
For his part, Suri added confirmation that he thinks it is time for him to move on. “I leave Nokia knowing that I am ready to do something new after more than a decade in the role. So it is the right time for me to step aside. There is a time for change for everyone and that time for me is in the months ahead.”
One thing that was lacking, in Suri’s prepared remarks and in the Q&A is any sense of why Suri wants to go now – or indeed why he has wanted to go “for some time now” in the words of his Chair.
So, absent any explanation of why this is the time for change, the sense persisted that the timing is odd. If it’s not odd it’s certainly very unfortunately coincidental with last week’s Bloomberg story. Why would Suri leave on his own terms right now, with the 5G cycle very much half done? Surely better to see through the next process by which Nokia gets its better kit out into the market and starts to take on the mass adoption of 5G, as well as start to reap what its enterprise positioning is currently sowing.
Tortuous body-language reading
And the company’s press conference was revealing. The mood was, judged from the end of a webcast replay (the live version buffered to oblivion)… downbeat. Admittedly, this could be down to Scandinavian reserve, but master of ceremonies Barry French is not Scandinavian and the normally chipper and super-positive marketing man sounded fairly sombre. Nor did Suri look like a man who has done his bit and is happily headed off to indulge his true passion of breeding rare orchids (or whatever). It felt like a divorcing couple genuinely sad that things have come to the end of the road. Don’t worry, nobody’s to blame, we’re not arguing, and you’re still going to see both of us. Plus, Daddy’s not leaving totally, he’s going to be in the house until the end of August and will be around as an advisor to the board for at least a few more quarters while we manage the transition.
And so, this deeply rigorous analysis partially concluded, we are left to think this is a change that the board, incoming Chair Sari Baldauf and all, felt needed to be made. They may have asked Suri for his cap and badge. Or Suri may have sensed how things were headed, concluded the team needed a new leader to match the incoming new Chair, and fallen on his sword. Either way, it’s thanks very much for all you’ve done, you’ll always be welcome to the Christmas party.
The other option is that Suri has walked just when they needed him not to, when they needed him to hold his nerve and face down investor unrest by sticking to a plan that they have insisted just needs time. And that sounds like the most un-Suri thing to do. As we were told, and I’ve never heard any different, he’s an honourable man.
Tortuous Football Analogy Incoming
I had an old boss once who was incapable of analysing anything without falling back on football metaphors. This was useful if you wanted to get sign-off on something as he could be persuaded to back most options if you told him we were pressing the opposition back with two fullbacks bombing on but we needed him to invest in a holding midfielder to add stability, or whatever. That was easier than saying, “We need to hire a new writer”, for instance.
I thought of him this morning, because Nokia’s CEO swap-out felt a bit like when a football club changes a manager two-thirds through the season, outside of the transfer window. In other words, it’s unclear what else is going to change, given the pressing immediate priority to avoid relegation – in this case for Nokia to avoid unthinkable relegation from the top tier of 5G RAN suppliers – and the lack of available alternative options immediately available.
The strategy is a good one but Pekka will have a look
Of course, when the next window opens up, we’ll see if the board will back the manager to make changes. Will new signings come, some old faces leave. Will the team play different tactics. In Nokia’s case, what’s the analogy? Does it need different people to deliver on its strategy, or does it need a new style of play?
The current proposal is to avoid sacrificing too much margin for contract share, which potentially means missing out on winning the Chinese Cup. Allied to this, the team is due a refresh when a new crop emerges from the youth set-up. The squad looks a bit threadbare for now, but wait for the new in-house chip to arrive to boost margins and product performance, and to start seeing our cloud core and software dominate possession. Not to mention, we’ve entered a new enterprise league and we’re currently beating our rivals there.
“The strategy is a good one but Pekka will have a look,” Suri said, of his successor. Siilismaa reiterated that things are essentially good, but of course the new man would have the freedom to take his own position on the strategy once he is in the job.
The real questions for Nokia, and for Nokia watchers, remain. Is it getting beaten on 5G product? And if so, why? Are the players (in this case the products not the people) good enough? Will they be, with the right manager to get the most out of them?
Nokia would point to its 68 5G contracts as evidence its 5G product is fine. But it could certainly do better margins in business terms, with a new SoC-based approach.
The pit and the pendulum
Can the pendulum swing back to Nokia?
There are two major Nordic telecoms vendors. One of them is focussed on selling mobile broadband equipment to network operators. It has recently jettisoned in various ways different business units that distract it from this process. This company is going to go on a good run, move from fourth to second in telco equipment vendors, and be hailed for its vision.
The other one is stitching together an end-to-end strategy through partnerships and acquisition, and is attracted by the potential to grow into adjacent industries.
The first one was Nokia and the second was Ericsson. Now, the roles are reversed. Ericsson has pared down its expansionist ambitions in media, cloud platforms for industry, being a payments and advertising exchange provider, and so on, and is focussed on its network operator customers and their network needs.
Nokia is now the one talking of operating end-to-end, from cloud to core to SD-WAN and IP transport, to the RAN. It sees itself as a leader in addressing new opportunities in the enterprise. Granted, this is still for its telco-grade equipment and software, mostly. It thinks it might sell as many base stations to “verticals” as to network operators. It thinks its cloud software can work in distributed private network deployments, often deployed through operators.
The pendulum swings. It’s a question of timing. Ericsson’s vision was premature, and saw the CEO and head of strategy depart. Now Nokia’s CEO is leaving and the former head of strategy has a new job within the company.
But maybe Nokia is also marginally premature. Perhaps its 5G RAN product is going to align better with phase two 5G (5G SA core networks and R16 features) and the attendant blossoming enterprise opportunity. It would be an irony if Lundmark is not prepared to wait and find out, and will turn back to the previously successful strategy, just as the current one might have hit home.
It’s a tough, tough call, and from August Pekka Lundmark will be the one making it.
