Soon after Nokia CEO Pekka Lundmark stepped into his new office last September, he presented a radical strategy built around a new leadership team and operating model.
Dividing Nokia into four businesses, Lundmark established mobile networks, network infrastructure, and cloud and network services, with a technology unit handling patent licensing and monetisation, among other areas.
Appointed president of network infrastructure, Federico Guillén was tasked with leading Nokia’s IP, optical and fixed networks, as well as Alcatel Submarine Networks (ASN). The company’s other business units are headed by Tommi Uitto, Raghav Sahgal and Jenni Lukander.
“Now each business group has full accountability on the P&L. So, we are responsible end-to-end, from the creation of the products to the sale of the products, to the delivery of the products. This has proven to be a better model in the few months of experience that we have,” Guillén told Capacity in June.
The former president of customer operations for EMEA and Asia-Pacific, Guillén brings more than 30 years of global experience to the role, having joined Nokia when his former employer, Telettra, was acquired by Alcatel-Lucent.
“In the end, it is the same company with different names,” the Spanish national jokes. However, it’s not the first time Guillén has worked under this model.
“This model is the one that I like more, regardless of whether I am on the sales or the product side of the company, and I have been jumping from one to the other all my life. I believe that this model sets the right level of empowerment. Everybody knows what they need to do. And at the same time, there is always one single point of accountability.
“So that’s what Pekka was looking for, and the results for the first quarter are kind of demonstrating that we are in the right direction,” he adds.
The Q2 results, however, demonstrated that it’s more than just direction – and the network infrastructure business was a standout performer. Nokia saw total net sales increase 4% (9% in constant currency), primarily driven by network infrastructure and Nokia technologies.
Lundmark revealed in his Q2 statement that in Guillén’s business there are “a series of product launches ahead in the second half to further strengthen our differentiation”.
On net sales, the network infrastructure’s four divisions saw a 20% increase on a constant-currency basis, led by submarine networks. That saw a 73% year-on-year increase, while fixed networks took second place, with 21% growth.
On the full-year outlook for the company, Lundmark revised Nokia’s operating margin from 8-11%, to 9-12%. Granted the market has changed significantly since his zero-growth outlook, Nokia has clearly transformed demand into opportunity.
“What we saw was a big demand in the summer of last year, an increase in the demand of fibre-to-the-home deployments,” says Guillén, adding that the impact of more traffic trickled down to the transport and IP network.
“On top of that, we are seeing a wave of investment in submarine cables as well, so the momentum in the market is good.” So good, in fact, that even mobile is losing its lead. As Guillén observes: “Since the summer of last year, more and more customers that I meet say their number one priority is not 5G any more, it is fibre-to-the-home and 5G – so both.”
Fibre fast
At the end of May, Nokia and Proximus turned on the world’s fastest fibre access network, exceeding 20 Gigabits per second at a launch event in Antwerp.
Deployed on Proximus’s existing fibre, the first-ever 25G PON live network connected the Havenhuis building in the Port of Antwerp with the Proximus central office in the middle of the city.
In line with Guillén’s earlier industry observations, Proximus already has a 45.9% market share in Belgium and is adding 10% coverage each year. Under its “inspire 2022 vision”, it is creating a high-capacity network that eliminates the need for fibre overbuild.
In July, Nokia’s 25G PON technology was also trialled by Openreach in the UK, and Telecom Armenia launched a “25G PON ready” network, initially in Yerevan.
Powered by Nokia’s Quillion chipset – which itself reached the 100-customer milestone in May following contracts with Telefonica, KPN, Oi Brazil, and others – the 25G PON network is compatible with the earlier-generations GPON and XGS-PON.
“The new boards that we are delivering are capable of doing, in the same hardware, GPON, XGS-PON and 25G PON,” Guillén explains.
Nokia says its Quillion-based solutions use in excess of 50% less power in fibre installations than previous generations and are two years ahead of the Codes of Conduct for Broadband Communication Equipment targets, helping operators to meet emissions goals and speed targets.
A further selling point is that operators upgrading to 25G PON can then backhaul 5G mmWave on that fibre.
“It’s a race to always lead in innovation. We lead, we innovate, we hit the market first – hopefully – and of course we amortise our investment and that money we take to invest again in the next generation,” Guillén says.
“Our strategy is always to be first in innovation. I like to say innovation is a raw material in this industry,” he adds.
Most research is conducted in the labs, with the best ideas pitched to execs on a quarterly basis and funded accordingly.
Obviously, if the aim is to remain in pole position, developments beyond 25G PON are already in the works – in fact, a proof of concept exists for 100G PON. And yes, the 25G PON will be compatible with the future 50G PON and, eventually, 100G PON.
Luckily, CTO of fixed networks Stefaan Vanhastel is also on the call to explain.
“We keep pushing the boundaries of physics, trying to get higher and higher speeds,” Vanhastel says.
“The fact that we do this on the same fibre, that’s a given, but we also try to make sure you can reuse the existing equipment – so that is why we looked for a way to get the 25 gig on our existing chip, so operators don’t even need to upgrade the equipment.
“Part of the design criteria for 25 gig was to also ensure the wavelength compatibility,” he continues.
However, the ability to serve the market depends on the availability of critical components. With the global chip shortage expected to last well into next year, Guillén says forward planning has been key for Nokia.
“We are having continual meetings with our suppliers and with our customers and now we have agreed with our customers that they give us higher visibility into their demand,” he shares, adding that the lead times requested are now a year or more, compared with six months before the pandemic.
“So far, we have been able to manage quite well, but that requires a lot of attention day to day.”
Sharing that he has met more suppliers in the past six months than he has in the previous six years, Guillén adds: “We take pride in having a supply chain team that is capable of anticipating, managing and doing better than the competition, and part of the result is because of that.”
The ASN effect
Of course, fibre and terrestrial networks are only part of Guillén’s portfolio. He is also responsible for the ASN businesses, and this is another area poised for runaway growth over the coming two years – so much so that factory capacity has already increased and, in July, two new vessels were acquired. Incidentally, ASN escaped Lundmark’s zero-profit outlook for 2021 and contributed to the revised outlook for the full year.
“With the entrance of the web players in this space – because, as you know, they are building their own cables – the market is going up significantly,” Guillén says
And with everybody racing towards the cloud, it’s part of the ‘new normal’.
Guillén says: “We are now preparing the capacity of our factories and vessels to deploy and maintain cables for the next two-and-a-half years, and we are increasing the capacity of the factories as much as we can, because the demand is there.”
If innovation and change are Nokia’s new modus operandi, then a transformation of the financials and the debut of the world’s fastest fibre network are certainly a strong start.
But as Guillén – as well as Vanhastel and Lundmark – confirmed, there’s much more to come.
