Nokia is exploring strategic options, which include possible asset sales or mergers and has hired advisors to weigh its options, according to a new report from Bloomberg.
5G pressure
In October last year, Nokia slashed profit outlook and the stocks dropped 21% - profits came under pressure due to the company spending acceleration on its 5G networks. Additionally, earlier this month, Nokia warned investors that it would not complete its transition to more profitable 5G products until 2022, so the information in the report doesn’t come as a shock.
Merger speculation
Earlier this month, US Attorney General William Barr said the US and its allies should consider investing in Nokia and Ericsson to counter Huawei’s dominance in 5G technology, which caused speculation of possible merger and acquisition activities.
The possibility of a merger between with Ericsson is discussed in the Bloomberg report but points out that it would be difficult due to all the all the European regulatory agencies that would be involved.
Indeed as Huawei, Ericsson and Nokia are the world’s biggest wireless networking equipment suppliers, competition has been exceptionally fierce over 5G equipment contracts from the operators. However, three vendors is the bare minimum required to keep competition alive in the industry and large telecom operators usually aim to use several suppliers for their networks. A merger between Nokia and Ericsson may well be seen as anti-competitive.
It’s worth noting that this was speculation as the report doesn’t indicate discussions are taking place between Finland’s Nokia and Sweden’s Ericsson. Similarly, just because Nokia has hired advisors to weigh its options, transactions may not happen.
Nokia shares rise
At the end of 2019, Nokia had around 27% of 4G and 5G radio access networks outside China and has said it aims to finish 2020 with the same share of business and provide updates in its quarterly earnings reports this year.
Despite Nokia's shares having been trending downward for the past year, in the hours following Bloomberg's report they increased by roughly 6%.
