Putting a dent in Nokia’s first quarter results was the unwelcome news that it had taken a EUR120 million charge on an existing contract with a (presumably quite major) customer.
On the upside, the vendor said it had signed an extension with T-Mobile USA to continue supplying it with 5G RAN products, including its latest high capacity massive MIMO products. That would have been a nice message to put out, and contract to win, after some speculation towards the end of 2024 that T-Mobile was going to join Verizon and AT&T in turning away from Nokia in the RAN.
But are the two announcements related? It is, at this stage, impossible to tell.
There was no further detail on the T-Mobile extension deal and Nokia couldn’t and didn’t provide any when TMN asked for more. So we don’t know the value of the deal, the timeline (just that it is “multi-year”) or the scope or scale of what is to be supplied, beyond the massive MIMO mention. The press release did mention that the deal would enable T-Mobile to leverage “next-generation RAN architectures that enhance agility, scalability, and operational efficiency.” This was in a paragraph that mentioned Nokia and T-Mobile’s ongoing commitment to explore AI-RAN together. Again, it’s not clear if the new contract is intended to introduce Cloud RAN architectures to the operator or is just a sort of vague nod to working towards AI-RAN, but somebody thought it worth including in the press release.
On a briefing call, new CEO Justin Hotard said the deal was a “significant multiyear extension in our RAN contract.” He added, “We think that this is a great opportunity for us to partnership to shape the next chapter of mobile connectivity in the U.S.”
As for the $120 million charge that Nokia has taken on a previous contract, Hotard told analysts that the charge related to “a customer-specific project that was from 2019.” This, he pointed out, pre-dates Nokia’s revision of its 5G RAN platform, whereby it moved from an FPGA-based Intel platform to its Arm-based Marvel platform for L1 radio baseband processing.
It sounds like Nokia had a customer that was unhappy with its 2019 deal, and that Nokia has agreed to remediate the issue at its own expense. Hotard said that although Nokia was aware of the issue, it didn’t have full sight of the financial impact, and so the 120 million number came as a surprise.
That said, Hotard said it was important for Nokia to take the charge so as to address their customer’s needs fully. It stands to reason that you would do that to save a relationship that is important to you, given that the material impact was enough to significantly affect operating profit for the quarter.
However, we’re not likely to see a bleed over into other customers who engaged with Nokia in that 2019 time frame. Hotard said he is confident this is a one-time specific issue.
Is that customer, however, T-Mobile USA? You could certainly make an argument that it could be. After all, this is obviously a customer that Hotard and Nokia felt it was important to save, and it really could not afford to be endangered at its last remaining US T1 RAN customer. On the other hand, Nokia had racked up between 50 and 60 5G contracts by the end of 2019, amongst whom KDDI, Korea Telecom, Softbank, Telia and T-Mobile could all be classed as major T1 customers that continue to engage with Nokia.
Who the customer is, and the scale of the T-Mobile deal, remain unclear. As long as it does, there will be those willing to make the connection.
