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Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

In 1249 AD, the Swedish regent Biriel Jarre led an army into Finland. Since then, Sweden has ruled Finland for 600 years until its defeat by Russia in 1808. The entanglements in history have made these two Nordic countries inextricably linked in politics, economy and culture.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Perhaps because of the cold, it is impossible to vigorously develop agriculture, or because of the small local market, in the process of industrialization for hundreds of years, low-key and reserved Swedes and taciturn Finns have created a large number of famous multinational enterprises.

Sweden, in particular, has many well-known companies such as Ericsson, Saab, Volvo, Atlas Copco, and Sandvik, all of which have top-notch industrial products in their respective fields.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson was founded in Stockholm, Sweden in 1876, initially repairing telegraphs and meters.

In 1865, Nokia was founded in Tampere, Finland, initially producing wood pulp and cardboard.

No one expected that these two humble small workshops would gradually grow in the future and become multinational giants in the global communication equipment industry, staged a realistic version of “A Tale of Two Cities”.

The political and economic landscape of the world is changing rapidly. When 5G is fully launched, the landscape of the communications industry is also constantly changing. The recent different performances of Ericsson and Nokia in the centralized procurement of Chinese operators have attracted widespread attention in the industry. At the end of April, the first-quarter financial reports of the two companies have been released. This article will start from the data and take stock of their performance to see how the year started, how the 5G global market structure is, and whether the follow-up development is stable.

For the sake of comparison, this article uses the US dollar as the currency unit and converts it at the quarter-end exchange rate in the financial report: 1 US dollar = 10.13 SEK; 1 EUR = 1.08 US dollars.

01. Overall revenue

Ericsson and Nokia both had sales of around $5 billion in the first quarter of 2020, with Nokia slightly higher. Compared with the first quarter of last year, Ericsson’s sales increased by 2%, while Nokia’s sales fell by 3.6%.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson’s first-quarter net profit reached 230 million US dollars, with a net profit margin of 4.6%. Nokia’s net profit was US$40 million. Although the net profit margin was only 0.7%, it was significantly improved year-on-year.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

02. Revenue of each business

year-on-year change

Ericsson’s Networks business grew 6% year-on-year, showing positive momentum, mainly due to strong 5G demand worldwide. Digital services fell 6.5% year-on-year due to lower sales of services and hardware. Managed services fell 3.4% year over year due to the exit of some non-strategic contracts.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson’s sales data by business

Nokia’s network business fell 4.7% year-on-year. Among them, the mobile network decreased by 1.5% year-on-year. According to the financial report, the main reason is the reduction of traditional network demand. However, the decline was partially offset by strong demand for 5G.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Nokia’s sales data by business


Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Nokia Networks Segment Sales Data

Nokia’s fixed network fell 17% year-on-year, mainly due to the impact of the digital home business in China and copper access in Europe. Software increased 12% year over year mainly due to strong execution of sales and improved product mix.

Ericsson’s first-quarter network (wireless-focused) sales were $3.5 billion. Nokia’s wireless revenue of $2.63 billion is smaller than Ericsson’s.

Ericsson’s digital services revenue was US$720 million, mainly including OSS/BSS and core networks. Nokia’s software business has similar products, and sales of $660 million are comparable in size.

It is worth mentioning that Ericsson acquired Kathrein’s antenna and filter business in 2019, while Nokia’s subsidiary RFS also has an antenna business. In the 5G era, the integration of radio frequency units and antennas is a trend, and both companies have completed their product portfolios ahead of schedule.

Proportion of each business

Ericsson’s network business accounts for 71%, which is the absolute core business. Digital services and managed services rely on network businesses, accounting for 26% of the total. The proportion of emerging businesses is very low, only 3%.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings


Nokia’s network business accounts for 76%, mainly composed of four product lines. Among them, mobile network accounted for 49%; fixed network, IP routing and optical network accounted for a lower proportion, with a total proportion of 27%.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings


Nokia’s software business is mainly dependent on the network business, accounting for 13%. Nokia’s technology accounts for 7%, and high profits are obtained through brand and patent licensing.

Profit of each business

Only the network business and management services of Ericsson have achieved profitability, and the core network business has boosted the overall profitability.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson’s operating profit by business

Operating profit for Nokia’s Networks business was -$90 million, compared to -$270 million in the first quarter of 2019, and the year-on-year loss narrowed significantly. Nokia’s technology operating profit of $313 million boosted overall profitability.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Operating profit of Nokia’s businesses

In the first quarter, Ericsson’s network business posted operating profit of $570 million, with an operating profit margin of 16 percent. The Nokia Networks operating profit was -$90 million. As far as the core network business is concerned, Nokia is still under great pressure on profitability, and in terms of market strategy, it will continue to be sensitive to business.

03. Revenue by region

year-on-year change

Ericsson’s revenue in North America reached $1.77 billion in the first quarter, up 11% year-on-year, thanks to strong demand for 5G deployments in the region. The Middle East and Africa region grew 7.5% year over year, driven by the deployment of wireless networks in key markets. Northeast Asia was flat year-over-year, with lower revenue from slower 4G network deployments in China partially offset by growth in Japan.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson’s sales by region

Nokia’s North American sales were $1.58 billion, up 3 percent year over year. The Middle East and Africa region grew by 8.8%. Greater China fell 29% year-on-year, and Nokia’s recent poor performance in the Chinese market has had an impact on revenue.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Nokia sales by region

The proportion of each region

Ericsson North America accounted for the highest sales at 36%. Followed by Europe and Latin America, accounting for 24%. These two regions together account for 60%, and play a key role in maintaining Ericsson’s fundamentals. Northeast Asia has the lowest proportion, only 8%. It is worth mentioning that Sweden’s sales were US$22 million, accounting for only 0.4%, and the local market is very small.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings


Nokia also has the highest share of sales in North America, reaching 30%. Followed by Europe, the two regions together accounted for 60%, playing a key role in maintaining Nokia’s fundamentals. Greater China accounted for only 6%, and fluctuations in the Chinese market had little impact on the overall disk.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings


North America is the largest granary for the two companies. Ericsson’s first-quarter sales were $1.77 billion and Nokia’s $1.58 billion, with a combined total of $3.35 billion, roughly reflecting the size of the North American market in the first quarter.

Ericsson China accounted for 4% of sales, at $190 million; Nokia Greater China accounted for 6%, with sales of $330 million. The two have the same size in the Chinese market.

Regarding the Chinese market, in the recent 5G centralized procurement of the three major operators, Ericsson has achieved good results in both wireless and core networks, while Nokia has only gained a small share of the core network. The different situations of these two foreign companies have become a concern in the industry. Why does Nokia have such a result in the centralized acquisition? The reasons are more complicated, the benevolent see benevolence, and the wise see wisdom. Here is just a simple analysis.

Under normal circumstances, in order to obtain a contract in the operator’s procurement, the following conditions need to be met:

1) Decision Maker’s Customer Relationship

2) Products that meet your needs

3) Competitive quotation

4) Timely and stable delivery

5) Grasp the dynamics of friends and businessmen

Only when these five cards are collected, can it be possible to play “Wang Bang” and win the contract.

The details of the centralized procurement cannot be known here, but it can be reasonably inferred that it should be caused by some conditions of Nokia not being met. Is it a problem with its own strength? Should not be. In the first quarter, Nokia raked in $1.5 billion in revenue in North America. American operators have high requirements for products, and they can be selected by mainstream customers, which shows that their comprehensive strength can stand the test.

why? Let’s take a look at the financial report, which mentioned that the market share of 4G/5G wireless products will reach the target of 27% by the end of 2020. However, the statistics do not include the Chinese market. The reason: “the challenge of margins and the unique market volatility of the region”.

It can be seen that Nokia has lowered its expectations for the Chinese market and adopted a more conservative strategy while still under great pressure on profitability. “Those who ask for the top get the middle, and those who ask for the middle get the bottom”. This is a macro-level factor that we can see.

On the other hand, Ericsson’s profitability is significantly better than Nokia’s. With a solid financial fundamentals as the support, in the highly competitive Chinese market, it can have more cards to compete with Chinese friends.

04. Financial Soundness

While the business is developing, it is necessary to pay attention to financial stability, including whether the cash flow is sufficient and whether the debt ratio is within a reasonable range.

cash flow

In the first quarter, both Ericsson and Nokia generated negative cash flows from investing activities. Among them, the cash paid for the purchase of fixed assets is significantly greater than the cash received from the sale of fixed assets, indicating that both companies are showing a trend of internal expansion in an attempt to enhance market competitiveness.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Cash and cash equivalents

At the end of the first quarter, the cash and equivalents of both companies increased compared to the beginning of the first quarter. Nokia has $1.88 billion more cash and equivalents than Ericsson.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Assets and Liabilities

Nokia’s total assets amounted to 42.9 billion US dollars, significantly higher than Ericsson in scale. Nokia’s gearing ratio of 60% is lower than Ericsson’s.

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

05. Running on the road of 5G

In 2020, the 5G construction of global telecom operators is in full swing. So, how many 5G contracts have the two Nordic companies won? Which carrier customers are there? What about the pattern in the global market?

The complexity of 5G networks and the trend towards interconnection of all things make some countries very sensitive to network security. The current communication infrastructure construction has gone beyond the scope of business and is more affected by the international political and economic situation. We have seen that Ericsson and Nokia are taking advantage of the opportunity of this industry reshuffle to make frequent attacks in many high-value regions around the world.

On the official websites of the two companies, the 5G contracts that can be announced are displayed in a high-profile manner, including specific operators and countries, which reveals a strong self-confidence and a territorial declaration.Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

Ericsson has significantly higher 5G contracts and commercial networks than Nokia. It seems that the rhetoric made by its CEO before is not groundless.

For the 5G customers announced on the official websites of the two companies, this article will do a panoramic review and try to show the pattern of the global telecom market.

5G customer comparison

Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings

 Nordic “Tale of Two Cities” – Analysis of Ericsson and Nokia’s First Quarter Earnings 

*Blue fonts are common customers of both parties

5G customer country distribution

Key Market Inventory

North America

United States Ericsson and Nokia have won contracts from all major operators, including AT&T, Verizon, T-Mobile, Sprint, and achieved a grand slam. Ericsson has also cooperated with several regional operators in the United States. There are basically no Chinese friends and businessmen here. The Nordics are riding horses and galloping on this “new continent”, living their lives unrestrained and unrestrained.

Nordic region

In addition to Sweden, Ericsson has a presence in Norway and Denmark, and has won contracts from key customers Telenor and Telia. Nokia only has cooperation with Telia and Elisa in its native Finland. It can be seen that in the Nordic base, Ericsson’s disk is better.

Western Europe

As the highest value land after North America, there are many developed countries in Western Europe, and the 5G contracts obtained here will have a strong benchmarking role. What kind of contract has high gold content? – “Big country big T”.

Ericsson has won the contract of the European giant Vodafone, including the UK headquarters, and subnets in Germany and the Netherlands. And Nokia won an order from another giant, Telefonica, including sub-networks in the UK and Germany. In addition, both companies have won contracts from Orange, a major French customer. In general, Ericsson and Nokia are on a par with each other in Western Europe.


China In the recent 5G centralized procurement, Ericsson has achieved a grand slam among the three major operators, and it is estimated that the official website will be updated soon. Nokia has only gained a small share of the core network in China Unicom.

As the first country in the world to realize 5G commercial use, the Korean market is particularly interesting. Ericsson and Nokia achieved a grand slam on the country’s three major operators, including KT, SKT and LG U+. Due to historical reasons, South Korea and the United States are closely linked, and the annual US-ROK military exercises are a blast. Under pressure from the United States, both KT and SKT excluded Chinese equipment manufacturers. Only LG U+ withstood the decisive force and resolutely chose Huawei as the 5G supplier, which added a touch of drama to the telecom landscape in the peninsula.

Japan’s Softbank and KDDI have both selected two Nordic companies as 5G suppliers. It is worth mentioning that Nokia has also won a contract from Docomo, Japan’s largest operator. Docomo is a bit of a maverick and has always been inclined to cooperate with local Japanese companies, including NEC and Fujitsu, so this Nokia contract has strong strategic significance.

Under pressure from the United States, Japan’s three major operators have moved in unison to exclude Chinese manufacturers from the 5G construction. Here to mention Softbank. It chose to cooperate with Huawei in the 4G era. One of the reasons for this change is the $26 billion merger on the other side of the ocean. The merger of US operators T-Mobile and Sprint has been regulated by the country’s government agencies. As Sprint’s parent company, Softbank will have to bear more pressure from the United States if it wants to facilitate the merger. The global telecommunications market is intertwined and inextricably linked.

the Middle East

The face of the region has changed dramatically since May 26, 1908, when a British exploration team drilled the first oil well in the Middle East on the border of Iran and Iraq. Before the discovery of oil riches, countries in the Middle East were basically still in the nomadic stage, and camels, tents, and date palms were the three main items. After accumulating huge wealth, the Middle East, especially the Gulf countries, have started large-scale infrastructure construction, and they are also pioneers in communication networks.

As the leading brother in the Gulf region, Saudi Arabia has a strong benchmarking role. Two Nordic companies and major operators STC, Mobily have cooperation. In addition, Nokia has won a contract for the Saudi sub-network of Zain, which is a multinational operator headquartered in Kuwait and has a large influence in the Middle East and Africa.

United Arab Emirates Another heavyweight presence in the Gulf, its second-largest emirate, Dubai, is more widely known for its surreal architecture. Ericsson has secured an order from Etisalat, an Abu Dhabi-based multinational operator with subnets throughout the Middle East and Africa. Nokia has partnered with du, a regional operator in Dubai.

The cartel Ooredoo, formerly Qtel (Qatar Telecom), cooperates with Ericsson and Nokia.

African Region

Restricted by the level of economic development, many African countries are still using 3G or even 2G networks. Obviously, they cannot afford the game of the rich like 5G, but there are also a few developed countries that have entered the 5G camp.

South Africa As the largest local telecom giant, MTN’s business covers many countries in Africa and the Middle East. Ericsson has won a 5G contract for MTN’s South African headquarters.

All in all, both Ericsson and Nokia have completed the first round of 5G deployments in major countries around the world.

06. Conclusion

The only two foreign companies among the first-tier equipment manufacturers are from Northern Europe, which is both accidental and inevitable.

The character of the company is often the character of the country. The Nordic people live in cold places, and the unique geographical environment has cultivated a stern and persevering style. In the competition with Chinese friends, even in the face of Huawei’s onslaught, Ericsson can still maintain its own product rhythm, and does not blindly fall into the track of seeking speed.

Even in the years when the mobile phone business was at its lowest point, Nokia still adhered to the network business of Nokia Siemens Networks, and acquired all the shares of Nokia Siemens Networks in 2013 and Alang in 2015, reflecting the ability to actively seek changes.

The communication equipment industry follows the “28 Law”, and the top big customers contribute most of the revenue. For Ericsson and Nokia, both North America and Europe account for about 60% of sales. As long as these two large granaries are firmly grasped, the overall basic plate can remain stable. Moreover, these two regions have a high degree of identification with the Nordic countries at the political, economic and cultural level, which is a natural advantage.

“If you lose the east corner, you will get the mulberry elm”, and vice versa. In the vast market of China, Ericsson and Nokia have a relatively low share, and most of the contracts are obtained by Chinese friends. Ericsson can hold about 10% of its share, and it has good profitability. In the medium and long term, its development in the Chinese market is relatively stable.

In the few centralized acquisitions at the beginning of the year, Nokia received very little share. And such a big cake in the Chinese market, no matter how thick or thin the cream is, no one can ignore it. In the short term, if Nokia can moderately increase the priority of the Chinese market, it is expected that the situation will change. In the medium and long term, with the improvement of overall profitability, it can also have more trump cards to participate in the game in the region.

For the communication equipment industry, the journey is like climbing a mountain.

Looking up, Internet companies continue to grab profits from the upstream of the value chain with the help of developed communication networks. Looking down, the Open RAN organization is shouting “software and hardware decoupling, open interface”, trying to subvert the industry. Although there is competition among communication equipment vendors, cooperation is even more necessary. In this once-in-a-decade 5G era, new growth points will be stimulated and the industry will become bigger and stronger together.

Northern Europe in winter is cold and windy. The azure blue waters of the Baltic Sea, mixed with ice floes, lap the shore again and again. In this peaceful land, Ericsson and Nokia have been developing for more than a hundred years and have experienced numerous successes and setbacks.

The “A Tale of Two Cities” in the new era is continuing.

“It was the best of times, it was the worst of times.

This is the spring of hope, this is the winter of disappointment.

We have everything and we have nothing. “

– Dickens

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