By Dominic Chopping
Nokia's revenue is set to fall after U.S. operator AT&T selected other vendors to build out a new network, a blow to the Finnish company's profitability targets that sent its shares tumbling Tuesday.
AT&T said late Monday that it struck a deal with Ericsson to buy up to $14 billion of so-called open radio access network technology from the Swedish supplier. The five-year agreement moves virtually all of AT&T's new purchases of certain cell-tower equipment to Ericsson, replacing existing gear from Nokia in many markets.
Nokia said that as a result of the decision, its share of revenue from AT&T would fall over the next two to three years. AT&T accounted for 5%-8% of Nokia's mobile networks net sales in the year to date.
At 1030 GMT, Nokia shares traded at the bottom of the Stoxx Europe 600 index, down 8% at EUR2.76.
Nokia said previously announced cost-reduction measures would partially mitigate the impact of AT&T's move.
Open RAN technology allows operators to build telecom networks using equipment from different suppliers rather than having to commit to using gear from one. AT&T said the shift will sped up its network overhaul and allow it to deepen its use of hardware and software from niche suppliers, yielding more flexibility, lower network costs and improved operational efficiencies.
Nokia expects its mobile networks business to remain profitable over the coming years, but AT&T's decision will delay the timeline of achieving a double-digit operating margin by up to two years, it said.
Analysts at Citi had expected Nokia's mobile margins to improve from 7% in 2023 to 10% in 2025, so the announcement is a big setback, they said in a note.
"Nokia had been the primary share gainer within the RAN market for the past two years, following the decline after it lost significant share at Verizon in 2019. The loss of share at a second North American customer, particularly given Nokia's legacy in that market, is a considerable blow," Citi wrote.
However, Nokia said it remains fully committed to Open RAN, with Japan's NTT Docomo recently selecting its O-RAN 5G network for its commercial deployment.
"Whilst the news from AT&T is disappointing, our mobile networks business has made significant progress in recent years, increasing our RAN market share and technology leadership," said Nokia Chief Executive Pekka Lundmark. "I firmly believe we have the right strategy to create value for our shareholders into the future with opportunities to gain share, diversify our business and improve our profitability."
Nokia remains a key partner for AT&T within both its network infrastructure and cloud and network services businesses. AT&T said its Open RAN supplier decision was driven by reasons specific to the U.S. company.
For Ericsson, the move is a boost as it becomes the first global vendor to deploy Open RAN with a major operator into an existing network, Citi said.
"The U.S. is the biggest market globally for telecom equipment and AT&T is the biggest spender in that market (across mobile and fixed), hence why we think this announcement is so meaningful," the bank wrote.
At 1030 GMT, Ericsson shares traded 5% higher at SEK57.01.
Write to Dominic Chopping at firstname.lastname@example.org
(END) Dow Jones Newswires