Nokia is reportedly exploring the possibility of a merger or acquisition in the face of intense pressures on profitability.
Loquacious sources told Bloomberg the Finnish comms outfit has hired advisors to review its options – which could include selling parts of the business or merging with a rival. Other possibilities include moving investments and making balance sheet adjustments.
The news comes during a period of relative turmoil for Nokia, which has seen its shares lose a third of their value over the past year. The biggest drop came in late October, when the company suspended dividend payments for Q3 and Q4 of calendar '19 and trimmed the profit outlook for 2020, citing fierce competition and higher-than-expected costs.
At the time, Nokia CEO Rajeev Suri had said the corporation would redouble efforts to lower the cost of its 5G infrastructure by investing in product development.
Nokia has marketed itself as a beefy 5G provider, flogging a product set that stretches from the radio-access network (RAN) to the underlying management suite.
Meanwhile, Ericsson has trod a slightly different path, focusing on RAN, displacing Nokia's kit from major 5G networks, including Vodafone and Deutsche Telekom, in the process, and winning over other major clients including AT&T and Swisscom.
Nokia also faces competition from Huawei, which, despite its troubles in the West, remains a contender due to its ability to undercut the competition on price. This has led some to accuse Huawei of being the recipient of state subsidies – a charge the firm steadfastly denies.
It's not clear what will happen next for Nokia. One possibility mooted is a merger with Ericsson – its biggest European rival. And while there are some obvious cost savings to be made by slapping them together, a move that might tempt shareholders, such a consolidation would inevitably attract the ire of the European Commission and its antitrust team.
Nokia could also look beyond the small club of 5G infrastructure providers. Given the technology is in its infancy, particularly when it comes to deployment, one would imagine there are no shortage of deep-pocketed firms looking to get in at the ground floor.
Of course there is another potential avenue: Earlier this year, US Attorney General William Barr suggested Uncle Sam acquire or invest in Ericsson or Nokia to hamper the stratospheric rise of Huawei. This one seems unlikely. ®