By Stu Woo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 7, 2020).
In the global race for 5G supremacy, Nokia Corp. bet big on the
wrong computer chip.
The Finnish giant invested in a costly processor to power the
hardware it has been selling to wireless carriers, which are now
building out 5G networks around the world. Customers, though,
preferred a cheaper, less energy-intensive version offered by
rivals Huawei Technologies Co. and Ericsson AB.
Now, with a new chief executive taking over next month, Nokia is
scrambling to make up market share lost to those competitors in the
wake of the chip mistake. After realizing its blunder in 2018,
Nokia replaced the head of its wireless-equipment business with
Tommi Uitto, who started a two-year restructuring program that
Nokia says is now starting to pay off.
He has doubled the research-and-development staff focused on
making cheaper chips. "We simply didn't have enough people," Mr.
Uitto said. He also diversified from one chip supplier to three:
"We got into this trouble by relying on only one."
The restructuring comes after a tumultuous few years for Nokia,
punctuated by the planned departure of CEO Rajeev Suri, who next
month will be succeeded by Pekka Lundmark. The former chief of a
Finnish clean energy-firm, Mr. Lundmark worked at Nokia 20 years
Mr. Suri assembled a company that focuses on selling the entire
spectrum of equipment that wireless carriers and landline
cable-and-internet providers need to build 5G networks. Such
networks promise superfast speeds and the ability to connect a new
universe of devices to the internet. Mr. Suri bet that by offering
the same breadth of products as Huawei, Nokia could make inroads
into the Chinese company's leading market share.
Nokia was also poised to benefit from a yearslong assault by the
Trump administration against Huawei. Washington accuses it of being
beholden to Beijing. U.S. officials have sought to limit Huawei
sales around the world, warning that China could order Huawei to
use its gear or employees to spy on or disrupt networks, a charge
that Huawei and China deny.
But by betting on the wrong chip in the early stages of its 5G
product development, Nokia has fallen even further behind. Last
year, Huawei increased its global share of the telecom gear market
to 28.3%, from 27.5% in 2018, according to telecom-research firm
Dell'Oro Group. In the relatively low-margin industry, where every
bit of market share counts, Ericsson boosted its share to 13.9%
from 13.7%. Nokia, meanwhile, fell to 16.2%, from 16.9%.
With no major American player in the industry, U.S. officials
have looked on with dismay, worried that both Nokia and Ericsson
won't be able to compete with Huawei in the long run. They have
toyed with shoring up both European players, through tax breaks and
export-bank financing, The Wall Street Journal has previously
reported. They have also prodded Cisco Systems Inc. and
private-equity firms to consider a buyout, the Journal
Nokia's chip mistake came as it and its rivals were racing to
master the contours of 5G even as the technology's technical
specifications hadn't been fully worked out.
Many of today's 4G antennas send wireless signals in a wide
cone, like a floodlight. But in 5G, some antennas concentrate those
signals like spotlights.
Each antenna can concentrate multiple spotlights on one device,
or simultaneously on several different devices, such as a
cellphone, a driverless car or a factory component. This innovation
should allow 5G antennas to transmit data 100 times faster than 4G
To make this happen, an antenna and its related circuitry needs
computer chips inside, perhaps five or more. The chips are so
crucial to making the system work that Washington, in one of its
more recent attempts to weaken Huawei, restricted semiconductor
makers from supplying the Chinese company with them.
Nokia selected the type of chip it thought would work best
before an important technical debate had been settled, Mr. Uitto
said. A telecom-industry consortium that included Nokia hadn't
finalized the standards for how cellular antennas should
communicate with phones and other devices.
Nokia had two options. One is called a "system-on-chip," or SoC.
Advantage: It is power efficient and cheap to make. Disadvantage:
Once the chip is made, it is difficult to reprogram. If Nokia
ordered a supply of SoC chips and then 5G standards didn't support
them, the company would have a bunch of useless chips.
The other option was the so-called field-programmable gate
array, or FPGA, chip. Its advantage was flexibility. An FPGA can be
reprogrammed after it goes into an antenna. Nokia could start
making antennas with the chips, and wireless carriers could
reprogram them to suit whatever 5G standards would be adopted
Nokia focused on the more expensive FPGA. When the development
of 5G accelerated, and standards crystallized sooner than expected,
around 2018, Nokia realized it had too many FPGA chips and not
enough of the cheaper ones that Huawei and Ericsson had bet on.
The FPGA was like "buying a car with a lot of features that you
don't use," said Sandro Tavares, Nokia's head of mobile marketing.
The SoC, meanwhile, "has exactly what you need, so you're not
spending that much money there."
One European telecom executive said the price tag for certain
Nokia equipment was double that of products by Huawei and Ericsson
using the SoC chips. Nokia executives say the price difference for
high-volume products was typically between 5% to 15%. Nokia
products using the FPGA chip also used more energy, a downside for
wireless carriers trying to cut down power consumption.
Earlier this year, Nokia released SoC-based products comparable
to Huawei's and Ericsson's. Mr. Uitto said 35% of Nokia's shipments
this year will have SoC chips, a number that will be 100% by
Write to Stu Woo at Stu.Woo@wsj.com
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