Retracing a Bumpy Road to Redemption

Thursday, Feb 7, 2019

LONDON — Few technology companies in recent years have experienced a fall as precipitous — or acted as aggressively to right the ship — as Nokia. At the height of its success as the global mobile handset leader, Nokia’s value was about US$285 billion. Today it is hovering at around US$33 billion as the company tries to consolidate its position as the second-largest global supplier of networking infrastructure to operators.

Nokia’s recent history sheds light on how the combination of external technological disruption and internal management shortcomings can sink corporations. Indeed, academics and management consultants often use the saga of Nokia’s fall — and, we believe, its gradual redemption — to illustrate how corporations can lose their way and bounce back.

Nokia has transformed its business model many times since its 1865 founding as a wood pulp mill, including forays into tires and galoscher (boots). (Image: Nokia)
Nokia has transformed its business model many times since its 1865 founding as a wood pulp mill, including forays into tires and galoscher (boots). (Image: Nokia)

It has helped, of course, that Nokia (Espoo, Finland) has morphed many times since its founding in 1865 as a wood pulp mill. (One of the mill’s products of the mill was, paper, so it could be argued Nokia has been in the “communications business” from its inception.) Over its history, it has entered and then abandoned the markets for bicycle tires, gas masks, electric cables, and television set-top boxes, among other high- and low-tech devices.

The iconic Nokia 6110 GSM phone launched in 1998
The iconic Nokia 6110 GSM phone launched in 1998

The company’s continual reinvention came up in an impromptu meeting with Willem Verbiest, head of Nokia’s Fixed Wireless Access business, at the recent Telecom Infra Project (TIP) Summit here. TIP is the Facebook-inspired and -led initiative that aims to overhaul the way carriers design and implement mobile infrastructure. The project takes a disruptive, open-ecosystem and open-architecture approach to equipment design in a bid to improve cost efficiencies for both operators and equipment suppliers.

“We pride ourselves in the way we push forward boundaries and are able to approach problems from a different perspective, which is why we’ve joined the initiative,” Verbiest told EE Times. “To date, we are the only major infrastructure equipment supplier to have the foresight to become a [TIP] member.”

Of course, Nokia might have averted its near-death experience had it adopted such a strategy a decade ago.

Risto Siilasmaa, chairman of Nokia, painstakingly makes that case in his book Transforming Nokia, published late last year. As the co-founder of cybersecurity software company F-Secure, Siilasmaa grew familiar with Nokia’s software strategy when his company became a supplier of security software to the handset maker. According to Siilasmaa’s account, soon after he joined Nokia as an independent director in 2008, he suggested that the company seriously consider using the nascent Google Android operating system for its next-generation devices rather than stick with its own  Symbian platform, which by then was past its prime.

The board never discussed the proposal. Siilasmaa blames then-chairman Jorma Ollila, writing that Ollila’s autocratic style had infected the management structure with the “toxicity of success” and an air of paranoia. Middle management was afraid of relaying bad news or potential problems up the ladder, leaving the upper echelons of management largely ignorant of internal weaknesses and threats from outside, Siilasmaa writes.

As one of the few at the very top who really understood software, Siilasmaa recognized the severity of the threat the company faced. But as an independent director at Nokia, Siilasmaa could not discuss issues with operational managers — an edict that he claims Ollila strictly enforced.

Former chairman Ollila dismisses many of his successor’s assertions, and a lively debate, if not a spat, persists between the executives. But the reality is that Nokia failed to grasp the gradual ascendance of software and apps over hardware as the crucial competitive differentiators.

In 2011, Nokia sought to right itself through a doomed collaboration with Microsoft that made Windows Phone the primary platform for Nokia smartphones. Nokia caught a major break in 2013 when the software giant agreed to pay an amazingly generous US$7.3 billion for the flailing handset division. Unburdened of that business, Nokia was freed to push forward in infrastructure, which remains its focus.

In the book, Siilasmaa suggests the money from Microsoft, together with the US$2.8 billion Nokia raised by selling its profitable HERE mapping operations to a consortium of German automakers, basically saved the company. Analysts largely concur.

The deal didn’t work out nearly as well for Microsoft, which sold off the Nokia assets in 2016 and had largely exited the phone business by the end of 2017.

Nokia’s first post-Microsoft move was to buy out Siemens from the Nokia Siemens Networks combine in 2013 for US$2.2 billion. Three years later came the game-changing acquisition of Alcatel-Lucent — one of Nokia’s largest competitors at the time — for US$17 billion in shares. And the consolidations keep on coming.

Late last year, Nokia split its Customer Operations business into two geographic regions: one covering the Americas and the Western Hemisphere, the other focusing on Europe, the Middle East, Africa, and Asia. It then announced in November that it would merge its mobile and fixed units to create an Access Networks division, valued at US$7 billion, that would “fully exploit the opportunities in 5G.”

Marc Rouanne, president of the Mobile Networks division and a longtime executive in the Alcatel-Lucent organization, resigned in the wake of the surprise November announcement. Rouanne had headed the mobile network group since 2017, when he took over from Samih Elhage in a previous round of consolidation that had split the mobile division into separate product and global service operations.

This latest reorganization underscores Nokia assertion that its major advantage when bidding for major infrastructure projects is its ability to offer a portfolio of fixed, mobile, and core network gear as a one-stop supplier.

But Nokia is not the only supplier positioned to make that claim. Its major competitor in the global market, Chinese group Huawei, has the same “end to end” capabilities, and reports suggest Huawei has been able to underbid the Finnish company and other competitors in numerous close contests. Nokia and others nonetheless have the advantage in the United States, where Huawei is prohibited from selling equipment to large carriers because of security concerns and charges that its chief financial officer did business with Iran in violation of U.S. sanctions.

The Chinese group’s subsequent ostracism from less significant 5G markets, including Australia and New Zealand, has further opened up opportunities for Nokia and its other main competitor, Ericsson.

In the United Kingdom, Huawei’s gear is at the heart of BT’s phone and broadband network, and the Chinese group recently won the contract to upgrade Three UK’s mobile network to 5G capabilities. Nokia supplies Three UK’s core mobile network and had hoped the existing arrangement would open the door to the 5G radio deal.

But in a surprise and controversial development late last year, the Chinese group’s increasing influence in the U.K.’s fixed and mobile networks infrastructure came under the scrutiny of the country’s most senior military intelligence officer. Alex Younger, the head of MI6, suggested the U.K. needed to decide to what extent it should “feel comfortable” with a Chinese company supplying so much of its communications infrastructure.

Huawei disputes the criminal allegations and insists that Chinese authorities have never asked it to install a “back door” to any network gear sold to another. The diplomatic rows and court filings don’t help Huawei’s prospects, but whether they ultimately benefit Nokia and other competitors remains to be seen. Industry watchers suggest Huawei has won several major contracts for its 5G gear since November 2018. 

Other deals and reorganizations, smaller but potentially significant, have further changed the strategic landscape for Nokia. Nonetheless, in its most recent quarter the company’s networks division was responsible for fully 88% of Nokia’s revenue, and it will take some time for that to change.

The emergence of 5G networks will be crucial to Nokia’s fortunes — and, to be fair, to those of its main competitors in the infrastructure business. Other features in this Special Project highlight 5G opportunities and challenges. 

Phil Twist
Phil Twist

Nokia has made some important technical and tactical bets that it believes will give it a clear advantage as network operators embark on the 5G rollout. 


Speaking to EE Times, Phil Twist, vice president of network marketing, said network slicing would be critical to operators’ ability to exploit 5G’s higher data rates and low latency. Slicing lets operators target parts of the core access network for specific use cases and functions. Different slices can be programmed to carry different protocols, and thus differentiated services, depending on the application. Nokia sees slicing as a way for operators to rationalize their networks and enter new business areas.



Author Article Image
John Walko

About the author
John Walko is a technology writer and editor who has been covering the electronics industry since the early 1980s. He started tracking the sector while working on one of the UK's oldest weekly technology titles, The Engineer, then moved to CMP's flagship UK weekly, Electronics Times, in a variety of roles including news deputy and finally editor in chief. He then joined the online world when CMP started the EDTN Network, where he edited the daily electronics feed and was founding editor of (which, over the years, has become the Wireless and Networking Designline). He was editor of EE Times Europe at its launch and subsequently held various positions on EE Times, in the latter years, covering the growing wireless and mobile sectors.