Following fierce competition and less than stellar stock performance, Nokia is considering its options for the future.
While Nokia has lost its position in the mobile phone market more than a decade ago, it has relied more on its network equipment to keep it afloat in subsequent years, competing with the likes of Ericsson (another failed phone maker from a bygone era), Huawei and other rivals in the field.
A moment of respite presented itself in the form of 5G networks, a new opportunity for innovation in the telecom field and a source of renewed demand for newer and better infrastructure equipment as the world makes the shift from 4G.
Yet, it seems even 5G might not be able to save Nokia. A report by Bloomberg has revealed that the company "is working with advisers to consider alternatives ranging from potential asset sales to mergers," as per information they learned from people familiar with the matter. "Other options include shifting investments and making balance-sheet adjustments."
"Nokia Oyj is exploring strategic options as fierce competition puts pressure on the Finnish network equipment maker’s earnings, people familiar with the matter said," as per Bloomberg.
Deliberations are ongoing, and there’s no certainty they will lead to any transactions, the people said.
This news comes following a rough fiscal year for Nokia, which did not have a good 2019, as earnings show.
"When Nokia reported third-quarter results in late October, investors were disappointed," news site InvestorPlace said. "Although the quarterly results were roughly in-line with expectations, management issued weak guidance targets and the stock got pounded." Nokia stock had started the year at about $6 and finished shy of $4, losing over 35%.
Still, Nokia announced last month that it had reached 63 commercial 5G contracts worldwide in countries like Saudi Arabia, Egypt, Austria, New Zealand, Norway, Saudi Arabia, and Switzerland. It also declared more than 2,000 5G patent families as essential for 5G, which should cement their place in the field for years to come.
Additionally, Q4 2019 and FY 2019 results released this month show that "results are better than analysts expected," with the company posting "adjusted earnings per share of EUR 0.15, compared to expectations of EUR 0.13."
"Nokia’s revenue for Q4 2019 was €6.903 billion ($7.58 billion), with Nokia Networks being the only division posting year-on-year growth in revenue," blog Nokia Mob reported. "The operating profit improved from €552 million ($606 million) in Q4 2018 to €803 million ($881.7 million). For the full year of 2019, Nokia posted €23.315 billion ($25.6 billion) in revenue, which is a growth of 3% compared to 2018. Nokia posted a profit of €18 million ($19.8 million) in 2019, compared to a €549 million ($602 million) loss in 2018."
Who could Nokia merge with?
Should Nokia consider a merger to keep afloat, Bloomberg suggested rival Ericsson AB, and if not in a full merger, at least in partnering in certain business areas. Both companies are European. Meanwhile, Nokia's other major rival is Chinese telecom firm Huawei, which is facing troubles of its own with the Trump administration.
In another piece by Bloomberg, they also mentioned that a merger between Nokia and Ericsson would create "a European behemoth to compete more effectively with China’s Huawei Technologies Co."
"Combining with Ericsson would make it easier to compete on price with Huawei, which benefits from the economies of scale afforded by the massive Chinese market, but it could also require several years just to secure regulatory approval, let alone integrate the operations," Bloomberg continued. "That would be a boon to Huawei, which could capitalize on the period of uncertainty to secure new customers."
It all went downhill with the iPhone
Over a decade ago, Nokia began losing its hold on the mobile phone market, around the time the first iPhone released. Lagging behind, Nokia eventually released its own touch smart phones with a mobile-optimized Window OS. By that point, iOS and Android had long since captured the majority of the market, with Apple's App Store and Google's Android Market (the predecessor of the Google Play store) dominating. By then, it was too late.
At the time, a phone's apps could make or a break a smartphones chances on the market, and the fact that Windows OS came with a very limited app marketplace didn't help their situation. It was finally laid to rest last year, years after "[Nokia had] sold its mobile business to Microsoft [in 2013]," InvestorPlace noted. "After that sale, the group has concentrated on marketing high-end networking gear and software to telecommunications companies as well as internet service providers."