650 Group Blog
|
Nokia’s Global Analyst Forum this week highlighted two main trends. First, the company says it has caught up to rivals in its 5G radio development. Furthermore, the company expects its wireless systems to become increasingly technologically differentiated from competitors. Second, the company emphasizes its message that it is the “green partner of choice.” We read that the company is making more power-efficient communications equipment. Apart from its significant themes meant for headlines, the company also highlighted that: (a) it’s experiencing strong private wireless growth, (b) its RAN systems are in the pilot phase with hyperscalers like AWS, GCP, and Azure, (c) it is embracing Open RAN faster than other established competitors, (d) it expects the Remote Radio Unit (RRU) to take an increasing fraction of total RAN spending, (e) it sees the RIC as a market expansion, (f) it expects to differentiate in radio in 2022 with its growing Carrier Aggregation capabilities. Nokia, which has significant revenue exposure to Mobile RAN, is in an interesting phase of its corporate development. With having brought on new CEO, Pekka Lundmark, recently, it abandoned its end-to-end product portfolio strategy. Yet, in recent times, the company’s non-radio portfolio has outperformed radio access network growth trends, which reinforces the idea that its broad portfolio serves it well. One of the company’s primary messages from the conference was that its RAN portfolio has caught up to competitors and that next year it will deliver significant improvements, including Carrier Aggregation and a broader portfolio of Massive MIMO systems. The company also said that it is working with a broad set of infrastructure providers and infrastructure software companies that will be able to support its RAN and core portfolio; examples include Anthos, Kubernetes, VMWare Tanzu, AmazonEKS, OpenShift, among others, operating on AWS, Azure, Google Cloud or on premises-based infrastructure. Nokia is investing in broadening out the appeal of its RAN and core systems both by embracing these various non-Nokia systems, as well as supporting Open RAN. The company says it expects an increasing amount of value to accrue to the RRU and away from baseband, which we see as consistent with its support of so many different infrastructure systems that would run baseband. The company sees revenue upside in the RIC market, part of the Open RAN architecture. The company’s support of Open RAN will lead to the commercialization of Open RAN systems in about two years, according to Nokia.   Furthermore, the company’s telecom core business is experiencing an acceleration in business trends. Like the RAN architecture support for various cloud systems, Nokia is even further along in offering support for its core systems like 5G Core. Management made two comments during its discussions that did an excellent job of explaining how far along the core market is in moving towards a hyperscaler-based infrastructure. First, Nokia said that “50% of RFQs include an option to run on top of the Hyperscaler.” Second, Nokia explained that of 82 of the engagements, 20 have serious public cloud investigations and dialog going. We are also encouraged by the company’s leadership in Fixed Wireless Access (FWA) and 25G PON. In 5G FWA, the company has some significant antenna and software algorithm capabilities, and we expect new, cutting-edge products in 2022. In 3GPP 5G FWA, the company holds a significant revenue market share lead as of 3Q21, illustrating its robust capabilities. The company made a bet on 25G PON and was a significant contributor to an MSA Group called 25GS-PON. Additionally, Nokia developed its own semiconductors, called Quillion, to support 25G PON (backwards compatible to lower 10G and 1G speeds).  
0 Comments
Nokia reiterated its commitment to 25G PON in its two-day briefing with industry researchers this week. It also shared some interesting commentary about is progress with Fixed Wireless Access (FWA) and its consumer Wi-Fi devices. But, what makes Nokia’s 25G announcement so interesting is that there is significant controversy associated with the 25G standardization process; 50G PON is also in the race for standardization, too. It seems that the world will split into two purchasing groups: Chinese and Western. We think the fact that two purchasing groups will emerge is a material negative for the telecommunications industry and is a sign of things to come. Nokia has decided to chart its own path, find partners, and make the best of this controversy. Our view is that Nokia’s 25G PON offerings will see more demand than 50G PON in the upcoming years, and when 50G finally becomes necessary, Nokia can move to support it. For background, in May 2020, Huawei announced to analysts that it is backing a 50G standards process, in cooperation with the ETSI. Huawei calls its 50G development “F5G,” which stands for Fixed 5G. It demonstrated over a video presentation an FPGA-based prototype, and it and explained that it expects this technology to be adopted first by the mobile infrastructure market for connecting RAN radio systems to baseband systems and for backhaul. Then Huawei expects the market will develop for residential PON, and later for enterprise campus connectivity (to replace Ethernet switches). Huawei explained that in February 2020, it has the support of Chinese operators, ETSI members in Switzerland, a European operator, Altice Portugal, and Chinese operators. On the other hand, Nokia had developed a chipset that specifically supports both GPON and next generation PON technologies; it is called Quillion and has been available for nine months. Nokia had consistently explained on several occasions in the past several months that during a February 2020 ITU meeting relating to 25G PON, 18 members of the ITU were in favor of initiating the 25G standardization project (including ATT, BT, Korea Telecom, nbn Co, Telecom Italy, SK Telecom, Telus etc). However, there was a minority coalition led by operators and vendors from China that objected to the proposal on the grounds that 25G PON would pre-empt their futuristic vision of 50G PON. This in turn resulted in no consensus being met. In response, Nokia has worked with operators and suppliers interested in pursuing 25G PON in the near-term, which we interpret as the next 1-2 years. This MSA (multi-source agreement) strategy is used by various groups in the technology industry when there is sufficient buying power to move ahead of (or in this case, without) standards ratification; we see if used frequently by hyperscalers when building their bleeding-edge data center infrastructures. We understand that there are a handful of operators, including Chorus (New Zealand), Chungwa Telecom (Taiwan), and NBN (Australia) and several technology suppliers including AOI, MACOM, MaxLinear, Ciena, Tibit and others. The MSA has a website with more information.  Nokia explains that 25G PON shares the same optical technologies as those used in Ethernet Switches that are common and used by data centers and campus switching environments. Sharing common optical technologies with high volume data center deployments will reduce costs . Our view is that in a few years, data center switching demand for 25G optics will continue to rise, and this is perfect timing for Nokia and others who are going to use 25G for PON because the supply will be there and this technology will be mature and lower cost.
There’s one other thing to consider that pits Nokia against others. It decided to develop its own semiconductors to power its infrastructure PON systems (OLTs). Nokia’s chip system is called Quillion, and its introduction means it won’t be dependent upon OLT chip vendors. What’s even more interesting about this whole debate is just how future-looking it is. PON has moved through two main generations, GPON (2.5 Gbps), 10 GPON (XGS and XGPON), and now we are talking about two different generations, 25G and 50G. Huawei’s 50G “F5G” approach is a “if you can’t join ‘em, beat em” strategy, where Huawei will leverage its home market telecom operators’ volume and a few others to work outside its home territory. Huawei will leverage this technology to three markets over time: 5G backhaul, residential PON and enterprise networking. On the other hand, Nokia is taking matters into its own hands in that it has developed its own chips. What’s happening now is not uncharted waters, but it is rare for the telecommunications industry to splinter into multiple buying groups – usually standards are developed and followed for the benefit of the industry. This time, in the absence of standards, Nokia has forged on ahead on its own and its headstrong ways are likely to benefit it because many Western operators and now actively seeking to diversify away from Huawei in their procurement of fixed network equipment. Last week, at Nokia's analyst meeting in Helsinki, it discussed its achievements and its challenges. The company’s successes include its traction and product introductions on the enterprise market, its market traction in selling Nokia’s end-to-end portfolio, and its 5G market momentum. Management reiterated that Nokia has signed 50 5G deals and its products are involved in 16 live 5G network. The company addresses some of its challenges, as well, including its delays in Systems on Chip (SoC) development progress, its diminished operating margins, competitive challenges in China, and an acknowledgement of increased price competition in the 5G era. We focus our writeup on two main topics: Enterprise and semiconductors.
Enterprise. The company leads with private LTE in selling to mostly outdoor environments where mobility needs are key. Nokia calls these networks “private wireless.” Generally, the target companies are those that are asset-intensive businesses, and Nokia has no current plans to go down-market. Nokia has sold to 120 enterprise customers as of September 2019, up from 80 as of June 2019.
Semiconductors. The company discussed semiconductors at great length at the meeting. Here is a summary of the main chips that were discussed.
|
CHRIS DePUY
|
RSS Feed